Weekly Market Review: Stocks Back to Winning Ways

The major U.S. indexes rallied nearly 2% on Friday, despite the record-setting negative jobs report. The S&P 500 gained 3.5% for the week, led by Energy and Technology names.

The U.S. economy lost 20.5 million nonfarm payrolls in April, as the unemployment rate moved up toward 14.7%. That said, investors chose to focus on the fact that the majority of states in the U.S. have begun to re-open for business.

Coronavirus Update

The main driver of volatility these days remains fear of the global spread of the coronavirus. At this point, there have been about 4 million global cases, with over 276,000 deaths reported. That figure includes around 1.3 million cases in the U.S., where more than 79,000 have died.

In addition to the relaxing of social distancing policies and gradual resumption of economic activity this week, there was some positive news on the medical front. Moderna (MRNA) received approval from the FDA this week, to move with Phase 2 trials for its coronavirus vaccine.

Earnings/Economic Outlook

Refinitiv has tallied that aggregate S&P 500 profits are on track to decline 12% in the first quarter. 67% of the 430 companies in the index that have posted results so far have exceeded expectations, which is ahead of the historical average of 65%.

As Earnings Season winds down, Wednesday’s report from Cisco Systems (CSCO) headlines the reporting calendar.

On the economic front, we’ll get some inflation (likely deflationary) data in the first half of the week. Friday offers a look at April U.S. retail sales, which are also expected to show a double-digit decline.

We know that deciding what and when to buy can be challenging for any investor. This is especially true when uncertainty is high and sentiment can quickly shift from Bull to Bear.

However, the fact remains that attractive investments are out there, if you’re willing to dig a little deeper.

One such Government Contractor is worth a closer look and is our Stock of the Week.

Stock of the Week: Science Applications (SAIC)

The company provides engineering and technology services to government entities across the U.S., including the Department of Defense.

The stock gained nearly 7% this week and we believe this momentum can continue throughout 2020. Here’s why:

While the global economy ground to a halt in March and April, Science Applications was open for business. Management has announced about $2.3 billion worth of new government contracts, in the past three weeks alone.

Even if spending budgets are hit because of a lower tax revenue base, the company’s high-technology contracts will likely prove more resilient than traditional defense contractors.

Even with the recent positive momentum, the stock remains reasonably valued. Science Applications is trading at just 13.7x expected full-year earnings of $6.15 a share. This represents a discount to both the broader market and the industry average valuation of 19x.

Analysts and Insiders See Value

The shares were upgraded at Goldman Sachs on April 20, from Neutral to Buy. Analyst Gavin Parsons set a price target of $97 (15% upside potential), citing the company’s accelerating bookings growth.

CEO Nazzic Keene agrees there’s upside potential and was buying stock on the open market last month.

There are several reasons why an insider may sell shares, but they generally only buy when there’s reason to be bullish. Arguably nobody understands the near-term outlook of a business better than its chief executive.

It’s also worth noting that SAIC carries a Smart Score of 8/10 on TipRanks. This proprietary score utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.

On top of the positive aspects mentioned already, the Smart Score indicates that the company has seen improving sentiment from financial bloggers.

FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.

You may also want to learn more about how we use TipRanks indicators to find stocks that are primed to outperform. Discover the Smart Investor portfolio here >>

Wishing you a world of investment success!

Leave a Reply

Your email address will not be published. Required fields are marked *

Leave a Reply

Your email address will not be published. Required fields are marked *