U.S. stocks snapped a four-week losing streak, as Real Estate names led the way higher. However, action in the financial markets was overshadowed by news early Friday that President Trump and several others in his orbit tested positive for the coronavirus.
Details remain limited at this time, but concern is high. Trump was moved to Walter Reed military hospital began treatment with Gilead’s (GILD) experimental Remdesivir medicine.
Earlier in the week, other headlines from Washington DC dominated the news cycle – namely renewed interest in passing a fourth round of economic relief. Democrats were seeking $2.2 trillion of support and the two sides had reportedly been nearing a compromise.
Friday’s September jobs report normally would have been a marquee event and painted a mixed picture. The U.S. added 661,000 new non-farm payrolls last month, which fell short of expectations. On the other hand, the headline unemployment rate fell to 7.9%.
Coronavirus Update
While it may no longer be the top news story in the financial press, the coronavirus pandemic is still with us.
In addition to the serious news about the President’s diagnosis, cases are up week-over-week in over 30 states. The NFL also postponed two of its games for Sunday following an outbreak of cases on multiple teams.
If the pandemic continues to spread, it could hamper the positive trajectory of the economic recovery reported in recent months.
What to Expect Next Week
Bringing the focus back to financial markets, third-quarter earnings season is around the corner. Travel-related names Carnival (CCL) and Delta Air Lines (DAL) are on the reporting calendar Thursday. According to Refinitiv, aggregate S&P 500 earnings are expected to decline 21% from a year ago.
It’s also worth noting that the S&P 500 once again ended the week below its 50-day moving average (3362). Short-term traders typically view this as a bearish sign.
Following the snap-back recovery in stocks from March lows, we believe that investment gains will be harder to come by in the fourth quarter.
As a result, deciding what and when to buy can be challenging for any investor.
However, the fact remains that attractive investments are out there, if you’re willing to dig a little deeper.
One such Industrial name is worth a closer look and is our Stock of the Week.
Stock of the Week: Wesco (WCC)
The company distributes materials for infrastructure businesses, such as electrical and communications networks.
The stock gained nearly 11% this week and we believe this positive momentum can continue throughout the remainder of 2020. Here’s why:
Wesco is a value stock that has identifiable, potential catalysts. Back in August, management posted quarterly results that surpassed expectations. The company earned $1.04 a share in the second quarter, as revenue fell 2% from a year ago, to $2.09 billion.
Upside in the period was driven by higher utility demand and share gains in a fragmented market. As a result, management ended the quarter with a record order backlog. In addition, Wesco’s free cash flow was 248% of adjusted net income in the quarter.
Growth at an Attractive Price
At current levels, the company is trading at just 9.8x expected 2021 earnings of $4.69 a share. This represents a discount to both the broader market and industry average of 18.2. It also appears inexpensive, when measured against the 47.8% earnings growth the company is expected to average the next two years.
A large part of this growth will likely come from Wesco’s acquisition of Anixter, which closed in June. The deal creates cross-selling opportunities to an expanded customer base. Management is additionally targeting $68 million of annual cost synergies in the first year, growing to $200 million within three years.
In addition, it’s worth noting that the stock carries a Smart Score of 10/10 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 insider buying, as well as improving sentiment from analysts, hedge funds and 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.
