Best Industrial Stocks To Buy In May

Key Insights

  • The broad market pullback continues, so traders are focused on finding stocks that are trading at attractive levels. 
  • While the market is worried about rising rates and the potential slowdown of the economy, analyst estimates for some industrial stocks have started to move higher. 
  • Rising analyst estimates could provide more support to the shares of FedEx and Cummins. 

S&P 500 continues to move lower, and traders are searching for value stocks which could protect them from broad market sell-off. While many tech stocks remain rather expensive despite the recent pullback, some industrial stocks are valued at less that 10 forward P/E.

FedEx

FedEx stock has been moving lower since June 2021, and the stock has reached attractive valuation levels. Analysts expect that the company will report earnings of $20.62 per share in the current year and earnings of $22.62 per share in the next year, so the stock is trading at 9 forward P/E.

It should be noted that analyst estimates have started to move higher in recent weeks, which could provide more support to FedEx stock. The current attractive valuation may serve as the main positive catalyst for FedEx shares as traders are moving away from high-PE names in the rising interest rate environment.

Cummins

Cummins stock has been trending lower since February as worries about the health of the global economy have put pressure on earnings estimates for one of the leading engine producers.

However, earnings estimates have recently started to move higher. Currently, the company is expected to report earnings of $17.65 per share this year and earnings of $20.21 per share in the next year, so the stock is trading at less than 10 forward P/E, which is cheap for the current market environment.

Cummins has recently released its first-quarter report, easily beating analyst estimates on both earnings and revenue. The stock quickly found itself under pressure due to general market weakness, but attractive valuation and recent improvement in analyst estimates may provide enough support to Cummins shares near current levels.

For a look at all of today’s economic events, check out our economic calendar.

UPS Profit Margins Under Pressure

United Parcel Service Inc. (UPS) reports Q1 2022 results in Tuesday’s pre-market session, with analysts looking for a profit of $2.88 per-share on $23.8 billion in revenue. If met, earnings-per-share (EPS) will mark a modest improvement compared to the $2.77 booked in the same quarter last year. Rival FedEx Corp. (FDX) fell 4.0% in March after missing fiscal Q3 earnings estimates and reaffirming guidance, generating a cautious tone ahead of the news.

Freight and Fuel Pressuring Margins

The stock fell ten sessions in a row at the start of April, signaling a major shareholder exodus, ahead of this week’s closely-watched confessional. A Bank of America downgrade after the seventh day added insult to injury, dumping price to the lowest low since October. Slumping freight prices explain most of the downside, with additional capacity putting pressure on profit margins, further aggravated by fuel costs hitting their highest highs in more than a decade.

BofA Securities analyst Ken Hoexter downgraded UPS to ‘Hold’ from ‘Buy’ on Apr. 15, lowering the firm’s price target to $204. JPMorgan analyst Brian Ossenbeck followed suit, cutting the price target to $229 while citing “the fragile balance of capacity additions in an overheated freight market.”  It’s instructive to note that freight rates across the board have dropped since those downgrades but it’s too early to declare a change in trend.

Wall Street and Technical Outlook

Wall Street consensus has deteriorated in the last three months, dropping to an ‘Overweight’ rating based upon 14 ‘Buy’, 3 ‘Overweight’, 11 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $150 to a Street-high $275 while the stock is set to open Monday’s session more than $55 below the median $245 target. This low placement suggests firms are doing a bad job informing clients about systemic risks in the transportation sector.

United Parcel Service broke out above the 2018 peak at 135.53 in August 2020, entering a powerful uptrend that stalled near 220 in May 2021. November and February breakout attempts failed, yielding a selling wave that dropped the stock within six points of October range support at 181. It’s been grinding sideways at that level for the last two weeks while accumulation has dropped to a six-month low. Bull and bear odds are equally weighted after the news but a long-term sell cycle could yield lower prices through most of the quarter.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Why FedEx Stock Is Down By 5% Today

Key Insights

  • FedEx earnings miss analyst estimates.
  • The company faces pressure from rising transportation and wage costs.
  • The stock will need additional positive catalysts to break the current downside trend.

FedEx Stock Falls After Earnings Report Misses Analyst Estimates

Shares of FedEx gained downside momentum after the company released its fiscal third-quarter report. FedEx reported revenue of $23.6 billion and adjusted earnings of $4.59 per share, beating analyst estimates on revenue and missing them on earnings.

Higher transportation and wage costs have put some pressure on the company’s profits. At the same time, FedEx noted that “the quarter’s results also benefited from lower variable compensation expense and less severe winter weather, resulting in favorable year-over-year comparisons”.

For the full fiscal year, FedEx expects to report earnings of $20.50 – $21.50 per share. The company’s capital spending guidance was lowered from $7.2 billion to $7.0 billion.

What’s Next For FedEx Stock?

The market is focused on the increasing cost pressures and their potential impact on the company’s earnings in the upcoming quarters. Currently, analysts expect that FedEx will report earnings of $20.62 per share in the current fiscal year, so the company’s guidance is above the analyst consensus. In the next fiscal year, FedEx earnings are expected to increase to $22.74 per share.

It should be noted that analyst estimates have been moving lower in recent weeks, and it remains to be seen whether the company’s new guidance will change this trend.

Transportation costs are set to increase due to the recent developments in commodity markets, and it looks that a $100 oil may become the “new normal” for the upcoming months. In this environment, FedEx profits may find themselves under pressure, which will be bearish for the company’s stock.

At current levels, FedEx stock is trading at less than 10 forward P/E, which looks cheap. However, the stock will need positive catalysts that could offset concerns about rising costs.

For a look at all of today’s economic events, check out our economic calendar.

Best Stocks, Crypto, and ETFs to Watch – Apple, Tesla, Dogecoin, Fedex in Focus

March triple witching and the Fed decision ensure high volatility and sudden reversals this week, telling traders to buckle up and take defensive measures. Fedex Corp. (FDX) heads a light earnings calendar, with Thursday’s release looking for a profit of $4.65 per share on $23.32 billion in earnings. The shipping giant failed a breakout in August, entering a steep decline that stretched to a 36% haircut last week. Worries about crashing volumes don’t appear far-fetched, given soaring commodities and the collapse of international markets.

Stocks

Dow component Apple Inc. (AAPL) has held up better than rivals in recent weeks, with long-time bulls unwilling to part with their precious shares. However, one immutable characteristic of bear markets could generate lots of pain down the road, regardless of the love affair with all things iOS. Specially, market generals are the last to fall in the first stages of bear markets, often causing enormous psychological damage that increases broad-based selling pressure.

Tesla Inc. (TSLA) failed a breakout above the 2021 high at 900.40 in February 2022, dropping to a 6-month low at 700. It bounced into March, stalling at new resistance and the 200-day moving average. Friday’s selloff could signal the end of that recovery effort, ahead of a dangerous test at the February low. That trading floor also marks the .786 Fibonacci retracement of the May into November uptrend, marking the last line of defense for battered bulls.

Crypto

Dogecoin (DOGE) soared in April 2021, lifting from $0.17949 to $0.6999 in just three weeks. The bubble then burst, relinquishing 100% of the rally wave into late June. Sadly for bulls, the crypto broke 7-month support in December, yielding mixed action into January, followed by a steady drip decline that’s now reached within a few clicks of February’s all-time low. Worse yet, volatility has evaporated from this market, allowing gravity to maintain control despite deeply oversold technical readings.

ETFs

iShares MSCI Emerging Markets Index Fund ETF (EEM) rallied above 12-year resistance at 50 in January 2021 and mounted the historic 2007 peak at 55.83 one month later. The fund then turned tail, failing both breakouts in a persistent decline that accelerated when Russia invaded Ukraine. This historic failure could signal long-lasting bear markets in Russia, China, and India, with plenty of potential downside into the 2020 low near 30.00.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Wall Street Week Ahead: Lennar, FedEx, Dollar General, GameStop and Fed’s Policy in Focus

The Ukraine-Russia crisis continued to dominate market movements, causing extreme volatility in the financial market and pushing the oil prices to a decade high and depressing stocks.

The U.S. Federal Reserve is widely expected to hike by 25 basis points to 0.25%-0.5% on Wednesday. Still, analysts will closely monitor inflation and the economic growth outlook and how the central bank projects future rate increases. The fear of a vicious cycle of low growth and higher inflation could deter the Fed from raising rates faster than expected previously.

Last week, the S&P 500 dropped 2.9%. Stocks in the energy sector were the top performers, up nearly 1.9%. Energy stocks have rallied on concerns about tightening supplies that have driven up oil and gas prices. The rally would likely continue this week.

In addition, investors will focus on December quarter earnings for economically sensitive stocks, which should show better profits than technology stocks amid surging inflation.

Earnings By Day

Earnings Calendar For The Week Of March 14

Monday (March 14)

TICKER COMPANY EPS FORECAST
CVGW Calavo Growers $-0.01
CORR CorEnergy Infrastructure Trust $0.37
MTN Vail Resorts $5.73

 

Tuesday (March 15)

TICKER COMPANY EPS FORECAST
CAL Caleres $0.46
CHMI Cherry Hill Mortgage Investment $0.28
IHS IHS Holding $0.04
KNDI Kandi Technologies Group $-0.07

 

Wednesday (March 16)

IN THE SPOTLIGHT: LENNAR

The home construction and real estate company Lennar is expected to report earnings per share of $2.80 in the fiscal first quarter, which represents year-over-year growth of over 37% from $2.04 per share seen in the same period a year ago.

The Miami, Florida-based company would post year-over-year revenue growth of more than 16% to around $6.2 billion. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

“2020-2021 proved to be strong years for the U.S. housing market despite the COVID-19 pandemic. We believe favourable demographics will support steady residential construction activity this decade, with annual housing starts averaging 1.6 million units. We expect first-time buyers will be a key driver of future housing demand, and Lennar is well-positioned to capture these potential buyers with its increased mix of entry-level homes,” noted Brian Bernard, Sector Director at Morningstar.

Lennar controls an ample land supply, which affords the company the ability to meet future demand while focusing on improving cash flows and maintaining a strong balance sheet. The company has shifted to a lighter land acquisition strategy, which seeks to reduce the amount of capital tied up in land by purchasing smaller land parcels and relying more on land options to acquire land on a just-in-time basis. We think this strategy should help the company realize better returns on invested capital and cash flows over the business cycle.”

A list of other earnings reports mentionable

TICKER COMPANY EPS FORECAST
GES Guess? $1.16
JBL Jabil $1.24
LE Lands’ End $0.33
SMTC Semtech $0.49

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 16

Thursday (March 17)

IN THE SPOTLIGHT: FEDEX, GAMESTOP, DOLLAR GENERAL

FEDEX: The Memphis, Tennessee-based multinational delivery services company FedEx is expected to report its fiscal third-quarter earnings of $4.47 per share, which represents year-over-year growth of over 28% from $3.47 per share seen in the same period a year ago.

The delivery firm would post revenue growth of over 9% to $23.58 billion. It is worth noting that the company has beaten earnings estimates only twice in the last four quarters.

“We are estimating adjusted EPS of $4.76, above the $4.69 consensus. FedEx (FDX) beat on the top and bottom lines last quarter as demand held in while costs remained manageable. We expect most strategic questions to be deferred to the June 28 /29 investor day,” noted Helane Becker, equity analyst at Cowen.

GAMESTOP: The world’s largest multichannel video game retailer GameStop is expected to report its fourth-quarter earnings of $1.06 per share, an improvement from a loss of -$1.39 per share seen in the third quarter. The Grapevine, Texas-based company is forecast to post year-over-year revenue growth of about 4% to around $2.2 billion.

DOLLAR GENERAL: The discount retailer is expected to report earnings per share of $2.59 in the fourth quarter of 2021, which represents a year-over-year decline of over 1.1% from $2.62 per share seen in the same period a year ago.

The Goodlettsville Tennessee-based company is expected to post a net income of $8.69 billion. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

Dollar General (DG) is a best-in-class operator offering a rare combination of 1) consistent, high-quality top-and bottom-line results; 2) visible store growth; and 3) a shareholder-friendly capital allocation policy. The ’22 investment setup is less favourable given decelerating momentum from recent initiatives, a tougher macro backdrop, and ramping expense pressures (particularly on labour). Street estimates look full/fair with less upside potential in our view,” noted Simeon Gutman, equity analyst at Morgan Stanley.

Dollar General’s (DG) valuation (~20x P/E multiple) is in-line with the market and screens relatively fair vs both relative and absolute history. Emerging initiatives (Popshelf, healthcare, produce) are longer-term drivers but likely won’t move the needle in ’22.”

A list of other earnings reports mentionable

TICKER COMPANY EPS FORECAST
ACN Accenture $2.36
DG Dollar General $2.59

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 17

Friday (March 18)

No major earnings are scheduled for release.

FedEx Is Well Worth Watching Ahead of Q3 Earnings

The Memphis, Tennessee-based multinational delivery services company FedEx is expected to report its fiscal third-quarter earnings of $4.47 per share, which represents year-over-year growth of over 28% from $3.47 per share seen in the same period a year ago.

The delivery firm would post revenue growth of over 9% to $23.58 billion. It is worth noting that the company has beaten earnings estimates only twice in the last four quarters.

“We are estimating adjusted EPS of $4.76, above the $4.69 consensus. FedEx (FDX) beat on the top and bottom lines last quarter as demand held in while costs remained manageable. We expect most strategic questions to be deferred to the June 28 /29 investor day,” noted Helane Becker, equity analyst at Cowen.

At the time of writing, FedEx stock traded 2.51% lower at $213.77 on Friday. The stock tumbled more than 17% so far this year after falling 0.4% in 2021.

Analyst Comments

“We expect a miss for F3Q22 as ongoing pandemic tailwinds are offset by headwinds from Omicron, weather and labour challenges. The sentiment is cautious and the stock has underperformed but the risk to numbers (esp. FY23/24) remains high and we will not have answers until the June analyst day,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We see EBIT growth slightly down in FY22 as volume pandemic related tailwinds begin to fade and the company grapples with very difficult comps. We continue to see secular threats to Parcel and remain skeptical that these trends will be sustainable but believe that until there is evidence of a reversal in earnings momentum, the stock can trade at its historical multiple (14-15x PE) on current EPS.”

FedEx Stock Price Forecast

Sixteen analysts who offered stock ratings for FedEx in the last three months forecast the average price in 12 months of $309.63 with a high forecast of $345.00 and a low forecast of $260.00.

The average price target represents a 44.49% change from the last price of $214.29. Of those 16 analysts, 14 rated “Buy”, two rated “Hold”, while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price to $260 with a high of $375 under a bull scenario and $125 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the delivery firm’s stock.

Several analysts have also updated their stock outlook. JP Morgan cut the price objective to $297 from $312. BofA lowered the price target to $297 from $310. Bernstein raised the target price to $353 from $339. Cowen lifted the price target to $310 from $283.

Technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator shows a selling opportunity.

Check out FX Empire’s earnings calendar

Better Days Ahead for Fedex?

Fedex Corp. (FDX) reports fiscal Q2 2022 earnings after Thursday’s closing bell, with analysts looking for a profit of $4.29 per-share on $22.42 billion in revenue. If met, earnings-per-share (EPS) will mark a 12% profit decline compared to the same quarter in 2020. The stock plunged 9.1% in September after missing Q1 estimates by a wide margin and lowering 2022 guidance. It fell another 6% to a 14-month low in October and bounced, filling the post-earnings gap in November.

2022 Labor Market Advantage

The company blamed a “constrained labor market” for the Q1 shortfall, generating a wave of analyst downgrades. Sentiment has not improved since that time, with wage pressures growing throughout the United States and around the world. Concerns about a weak holiday season and  Omicron-induced slowdown are adding to these headwinds, encouraging investors to sit on their hands until the profit landscape becomes more transparent.

Deutsche Bank analyst Amit Mehrotra recommended the stock in a backhanded way at the end of November, noting that rival United Parcel Service Inc. (UPS) faces tough contract talks with the Teamsters union, raising the potential for the first labor stoppage since 1997. He believes Fedex would benefit if that happens, noting “This makes FDX shares more attractive over the next 12-18 months, in our view, given its non-union employee base and a cost structure that better reflects real-time labor inflation.”

Wall Street and Technical Outlook

Wall Street believes that Fedex is undervalued at this time, posting a consensus ‘Strong Buy’ rating based upon 17 ‘Buy’, 4 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $250 to a Street-high $369 while the stock is set to open Thursday’s session nearly $6 below the low target. This dismal placement suggests limited downside after the report but uncertainly is likely to impact price action well into the first quarter of 2022.

Fedex completed a round trip into the 2018 high at 274.66 in October 2020 and broke out, but the uptrend failed after posting an all-time high at 319.90 in May 2021. The stock relinquished more than 30% of its value into October, ahead of a weak bounce that failed to mount 50- or 200-day moving average resistance. This bearish action tells us the downtrend remains in control and likely to keep pressure on the shipping giant in coming months.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Best Stocks, Crypto, and ETFs to Watch -ETH, FDX, FXI and ATVI in Focus

Ethereum (ETH) has outperformed Bitcoin (BTC) by a country mile in the last seven weeks, holding much closer to November rally highs. It’s pulled back just 19% since that time while the crypto king has relinquished nearly 29%. In addition, the decline has found support near the .382 Fibonacci retracement of the rally starting in September while BTC is struggling to hold the .786 retracement. And, unlike its rival, ETH hasn’t failed the breakout above the May high.

We’re headed into December triple witching options expiration, marking the last chance for fund managers to lock in 2021 gains (or losses) before heading out for the holidays. Expect volatility and two-sided action to surge, with growth, inflation, and Omicron competing for traders’ attention. The week could mark a good opportunity to think contrary and look for Peloton Interactive Inc. (PTON) to burn short sellers riding down a 61% six-week slide to a 19-month low.

Fedex Corp. (FDX) rallied above 2018 resistance in the 270s in November 2020 and failed the breakout 10 months later, entering a decline that tested the 200-day moving average successfully in September. It’s now bounced back to resistance at the 50-day moving average, just in time for Thursday’s after-hours report, when the shipping giant is expected to post a profit of $4.82 per-share on $22.4 billion in revenue. Look for the stock to make little progress after the news, with supply disruptions, inflation, and Omicron weighing on the holiday sales outlook.

iShares China Large Cap ETF (FXI) sold off to the .786 Fibonacci retracement level of the 2020 rally in July 2021 and has spent the last six months testing this support level, which has narrowly aligned with the 200-month moving average. This confluence predicts that bulls will ultimately prevail, ahead of a substantial rally wave that persists well into 2022. Relative strength indicators are flashing the same message, deeply oversold and trying to cross into buy signals.

Activision Blizzard Inc. (ATVI) has been crushed in 2021, dropping 37% in reaction to a poorly-handled sexual harassment scandal. CEO Bobbie Kotick faces widespread calls to resign but he continues to act like a Marvel villain, refusing to step down. Coca-Cola Co. (KO) could strip him of his Board membership soon while outraged employees are trying to unionize. All in all, this is perfect set-up for a profitable short squeeze when the CEO finally cleans out his desk.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held Coca-Cola in a family account at the time of publication.

Earnings Week Ahead: Lennar, Adobe, FedEx, Darden Restaurants and Fed’s Policy in Focus

Although next week’s earnings are unlikely to have much of an effect on major market movements, it is sufficient to gauge investors’ sentiment. The main event on the market will be the Fed’s policy announcement on Wednesday. After the central bank’s policy-making arm concludes its two-day meeting, all eyes will be on Jerome Powell, the Fed’s chairman, who will hold a press conference.

Earnings Calendar For The Week Of December 13

Monday (December 13)

Ticker Company EPS Forecast
PHX PHX Minerals $0.07

 

Tuesday (December 14)

Ticker Company EPS Forecast
CLSK CleanSpark $20.71

 

Wednesday (December 15)

IN THE SPOTLIGHT: LENNAR, FEDERAL RESERVE POLICY DECISION

LENNAR: The home construction and real estate company, is expected to report earnings per share of $4.15 in the fiscal fourth quarter, which represents year-over-year growth of over 46% from $2.83 per share seen in the same period a year ago.

The Miami, Florida-based company would post year-over-year revenue growth of more than 25% to around $8.5 billion. For four quarters in a row, the company has exceeded expectations on earnings per share.

In the fourth-quarter fiscal 2021, Lennar expects to build 18000 homes with a gross margin of 28%, according to Zacks research. The number of new orders is expected to range from 15,200 to 15,400 units, while the average selling price is forecast to be $445,000. As a percentage of home sales, SG&A expenses are likely to be 6.7%.

In a note to clients, Goldman Sachs analysts raised her price target for Lennar to $140 from $108 and upgraded it from neutral and buy to buy.

FOMC: On Wednesday, the Fed will likely announce an acceleration of its bond-buying program. Fed’s decision may also be influenced by consumer price inflation data, which hit nearly 40 years high in November.

“The concern at the Fed will be that high inflation today can fuel expectations of higher inflation tomorrow and the day after that and so on. This can then feed through into wage demands and in an environment of decent corporate pricing power we see those costs post onto customers,” noted James Knightley, Chief International Economist at ING.

“The Fed will be keen to avoid this (or be seen willing to tolerate it), hence our expectations for a faster taper next week, with the programme concluding in February. We also expect them to signal the prospect of two rate hikes in their “dot plot”, up from the one they currently have.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 15

Ticker Company EPS Forecast
ABM ABM Industries $0.80
HEI Heico $0.59
LEN Lennar $4.15
TTC Toro $0.53
NDSN Nordson $2.10

 

Thursday (December 16)

IN THE SPOTLIGHT: ADOBE, FEDEX

ADOBE: The U.S. multinational computer software company is expected to report its fiscal fourth-quarter earnings of $3.20 per share, which represents year-over-year growth of about 14% from $2.81 per share seen in the same period a year ago.

The San Jose, California-based software company would post year-over-year revenue growth of over 19% to $4.09 billion. In the last two years, the company has beaten earnings per share (EPS) estimates almost all the time.

“Heading into FY22 we favour core franchises at reasonable valuation levels, like Adobe. We see improving DX growth, more so than DM, to pave the route to sustained ~20% growth. The initial FY22 guide likely proves conservative, but establishes a base from which ADBE can grind higher,” noted Keith Weiss, equity analyst at Morgan Stanley.

FEDEX: The Memphis, Tennessee-based multinational delivery services company is expected to report its fiscal second-quarter earnings of $4.24 per share, which represents a year-over-year decline of over 12% from $4.83 per share seen in the same period a year ago.

The delivery firm would post revenue growth of about 9% to 22.41 billion up from $20.6 billion seen a year ago. In the last four quarters, the company has beaten earnings per share estimates (EPS) only twice.

“After several negative catalysts in the Parcel space, momentum has (modestly) reversed in recent weeks. The question is can FedEx’s (FDX) print continue to build momentum or will we return to our prior pattern of disappointing updates? We believe consensus & guidance are still too optimistic,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We expect F2Q22 to come in below consensus. We are also below cons. for overall EBIT driven by misses in Ground and Express which are only partially offset by a beat in Freight. All in, we continue to believe the FY22 guidance cut from last quarter was not enough and see risk to F2Q and FY22 numbers as pandemic tailwinds die down.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 16

Ticker Company EPS Forecast
ACN Accenture $2.63
JBL Jabil $1.80
SCS Steelcase $0.09
WOR Worthington Industries $1.72

 

Friday (December 17)

IN THE SPOTLIGHT: DARDEN RESTAURANTS

The Orlando-based restaurant operator, Darden Restaurants, is expected to report its fiscal second-quarter earnings of $1.44 per share, which represents year-over-year growth of about 95%, up from $0.74 per share seen in the same period a year ago.

The multi-brand restaurant operator would post year-over-year revenue growth of nearly 35% to $2.2 2 billion. In the last two years, the company has beaten earnings per share (EPS) estimates all the time.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 17

Ticker Company EPS Forecast
WGO Winnebago Industries $2.36

 

Consumer Price Index: Key Focus This Friday

Consensus is calling for a headline number of +6.8% but estimates range as high as nearly +8%. Investors will be closely scrutinizing underlying details for signs that price gains are starting to look more permanent. This would be most evident in the so-called “core” rate that strips out food and gas prices.

After moderating somewhat this summer, the gauge made a substantial jump in October, indicating prices are climbing for a more broad range of consumer goods that are unlikely to be rolled back.

Inflation

The current wave of inflation is being fueled on several fronts, but primarily economists blame a lack of supply to meet booming consumer demand for goods. Some equate it to the same type of supply-demand mismatch witnessed following World War II when Americans were in the mood to spend but wartime rationing had left many products in short supply.

By 1947, inflation had jumped to over +20%. However, by the end of 1948 it was hovering just over +8%, and less than a year later the economy had flipped into deflation.

Some economists argue the resulting recession of 1948-49 was due to the central bank adopting policies to fight inflation even as it had already begun declining on its own. This is an example from history that more bulls have been citing in their arguments cautioning against the Fed moving too fast as it looks to curb the current bout of rising prices.

What that period did not have was the labor shortage that American businesses face today. Many bulls believe the currently fierce demand for workers is largely driven by pent up consumer demand that will likely begin to fade next year. There are concerns that the issue is a more fundamental shift that proves to be permanent, though, which could keep wage pressures in place longer-term and present a whole different set of problems for the Federal Reserve.

Data to watch

Next week, the central bank is expected to announce plans to accelerate the pace of its asset “taper” which would in turn move up the timeframe for interest rate hikes to begin. What bulls really want to see is assurances from the Fed that they will remain flexible and willing to adjust policy if the economy shows signs of stumbling.

The two day policy meeting concludes on Wednesday, 12/15, and will be followed up by a press conference by Fed Chair Jerome Powell. The central bank will also publish new economic projections which will include inflation forecasts and median range interest rate projections, aka the “dot plot.”

The previous September forecast projected the Fed’s short-term interest rate target at +0.3% for 2022, +1.0% for 2023, and +1.8% for 2024.

Other data set for release next week includes the Producer Price Index on Tuesday; Retail Sales, Empire State Manufacturing, Import/Export Prices, Business Inventories, and the NAHB Housing Market Index on Wednesday; and Housing Starts, the Philadelphia Fed Index, Industrial Production, and IHS Manufacturing on Thursday.

Next week also brings central bank policy updates from Bank of England and the European Central Bank on Thursday.

On the earnings front, next week’s highlights are Adobe, FedEx, and Rivian, all of which release results on Thursday.

Overall, I still think there could be more extreme volatility and downside risk into next week’s Fed meeting so I have a few short hedges in place. I suspect once we get past the Fed meeting and any possible knee-jerk there might be a more clear path for the bulls to run into yearend.

 

FedEx Q2 Earnings To Come In Below Consensus, Says Morgan Stanley

The Memphis, Tennessee-based multinational delivery services company FedEx is expected to report its fiscal second-quarter earnings of $4.24 per share, which represents a year-over-year decline of over 12% from $4.83 per share seen in the same period a year ago.

The delivery firm would post revenue growth of about 9% to 22.41 billion up from $20.6 billion seen a year ago. In the last four quarters, the company has beaten earnings per share estimates (EPS) only twice.

FedEx stock was trading 2.35% higher at $240.84 on Monday. However, the stock declined by over 7% so far this year.

Analyst Comments

“After several negative catalysts in the Parcel space, momentum has (modestly) reversed in recent weeks. The question is can FedEx’s (FDX) print continue to build momentum or will we return to our prior pattern of disappointing updates? We believe consensus & guidance are still too optimistic,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We expect F2Q22 to come in below consensus. We are also below cons. for overall EBIT driven by misses in Ground and Express which are only partially offset by a beat in Freight. All in, we continue to believe the FY22 guidance cut from last quarter was not enough and see risk to F2Q and FY22 numbers as pandemic tailwinds die down.”

FedEx Stock Price Forecast

Twenty-one analysts who offered stock ratings for FedEx in the last three months forecast the average price in 12 months of $304.65 with a high forecast of $369.00 and a low forecast of $250.00.

The average price target represents a 26.49% change from the last price of $240.84. From those 21 analysts, 17 rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $250 with a high of $350 under a bull scenario and $125 under the worst-case scenario. The firm gave an “Equal-weight” rating on the multi-brand restaurant operator’s stock.

Several other analysts have also updated their stock outlook. Deutsche Bank raised the target price to $299 from $280. JPMorgan slashed the price target to $305 from $329. Cowen and company cut the target price to $283 from $297.

Technical analysis suggests it is good to sell as 100-day Moving Average, and 100-200-day MACD Oscillator signals a strong selling opportunity.

Check out FX Empire’s earnings calendar

U.S. Earnings Seen Strong, but Supply Chains and Costs Worry Investors

But as business continues to emerge from the coronavirus pandemic, new problems are arising that are taking center stage for Wall Street, including supply-chain snags and inflationary pressures.

In the run-up to earnings season, a number of companies have issued downbeat outlooks. FedEx Corp said labor shortages drove up wage rates and overtime spending, while Nike Inc blamed a supply-chain crunch and soaring freight costs as it lowered its fiscal 2022 sales estimate and warned of holiday-season delays.

“The pace of growth is decelerating, but still it’s at a meaningful level,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. With the product and labor shortages and inflationary pressures, “we’ll be looking to see to what extent demand is there, and what does it mean for the important holiday spending period.”

Analysts see a 29.6% year-over-year increase in earnings for S&P 500 companies in the third quarter, according to IBES data from Refinitiv as of Friday, down from 96.3% growth in the second quarter. The third-quarter forecast is down a touch from several weeks ago, a reversal of the recent trend for estimates.

Third-quarter earnings growth was always expected to be much lower than the blowout gain of the second quarter, when companies had much easier year-ago comparisons because of the pandemic.

“We were going up at such a high clip. The positive revision momentum has lapsed,” said Nick Raich, CEO of independent research firm The Earnings Scout.

Earnings season is kicking off this week with the big banks including JPMorgan Chase.

SUPPLY CHAINS, COSTS

Investors are weighing the impact of sharply higher energy costs on businesses and consumers after a recent surge in oil and natural gas prices. While higher energy prices should be a boon for energy producers, they are an inflationary risk for many other companies like airlines and other industrials and cut into consumer spending.

U.S. companies have so far this year kept profit margins at record levels because they have cut costs and passed along high prices to customers. Some investors are anxious to see how long that can go on.

Third-quarter earnings arrive with the market still wobbly after a weak and volatile September. The S&P 500 in September registered its biggest monthly percentage drop since the onset of the pandemic in March 2020. It was also the index’s first monthly decline since January.

Analysts are skeptical about how much is priced in.

“COVID-related supply chain issues have spread beyond consumer goods. And longer-term signs of global friction are easy to find,” Savita Subramanian, head of U.S. equity & quantitative strategy at BofA Securities, wrote in a note on Friday. But she said these issues are far from being fully priced into stocks.

Morgan Stanley’s analysts say that consensus earnings expectations also have not fully priced in the supply-chain constraints facing companies, making it much harder for companies to surpass estimates at the same rate as in recent quarters.

“Consumer Discretionary companies of all kinds are right in the cross hairs of the supply shortages, higher logistics costs and higher labor costs,” they wrote. Those strategists see the equity market set for a bigger pullback, and say third-quarter earnings could determine how deeply the stock market dips.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Caroline Valetkevitch in New York; Editing by Megan Davies and Matthew Lewis)

Why FedEx Stock Is Down By 8% Today

FedEx Stock Falls As Quarterly Report Misses Analyst Estimates

FedEx stock found itself under serious pressure after the company released its quarterly report. FedEx reported revenue of $22 billion and GAAP earnings of $4.09 per share, beating analyst estimates on revenue and missing them on earnings.

The company stated that quaterly results were “negatively affected by an estimated $450 million year-over-year increase in costs due to a constrained labor market which impacted labor availability, resulting in network inefficiencies, higher wage rates, and increased purchased transportation expenses”.

FedEx stated that it would increase FedEx Express, FedEx Ground and FedEx Home Delivery rates by an average 5.9% in 2022, while FedEx Freight rates would be increased by an average 5.9% – 7.9%.

For the fiscal 2022, FedEx expects to report earnings of $19.75 – $21.00 per share, compared to the previous estimate of $20.50 – $21.50 per share.

What’s Next For FedEx Stock?

Cost inflation has put significant pressure on FedEx bottom line, and the market is no happy with the company’s results. Currently, analysts expect that FedEx will report earnigns of $21.2 per share in the current year and $23.57 per share in the next year, but these consensus estimates will soon move lower.

While FedEx is trading at roughly 10 forward P/E (based on current analyst estimates) which is certainly cheap for the current market environment, the market does not like higher costs and falling earnings estimates.

FedEx has previously announced its intention to raise shipping rates, so this news had no impact on the stock’s dynamics during today’s trading session.

It remains to be seen whether FedEx stock will attract value-oriented traders ad investors. Current valuation levels look cheap for today’s market environment while the stock has moved from the $320 level in May to the $230 level. In case the market focuses on the company’s longer-term potential in a world where online sales continue to rise at a healthy pace and may further boost earnings of logistics companies, FedEx will have a chance to gain upside momentum.

For a look at all of today’s economic events, check out our economic calendar.

FedEx Shares Slump 5% After Earnings Disappoint

FedEx shares slumped about 5% in extended trading on Tuesday after the Memphis, Tennessee-based delivery services company reported lower-than-expected earnings in the fiscal first quarter and slashed their full-year outlook.

The delivery firm reported a net income of $1.19 billion, or $4.37 per share, during the fiscal first quarter, down from $1.28 billion, or $4.87 per share, a year ago. The company’s revenue rose 14% to $22.0 billion, beating the market expectations of $21.8 billion.

FedEx lowered its earnings outlook to reflect first-quarter results, which were lower than the company’s June forecast. The company forecasts earnings per diluted share of $19.75 to $21.00 before the MTM retirement plan accounting adjustments and excluding estimated TNT Express integration expenses and costs associated with business realignment activities, compared to the prior forecast of $20.50 to $21.50 per diluted share.

Following this, FedEx shares slumped about 5% to $239.76 in an extended trading session on Tuesday.

Executive Comments

“The current labour environment is driving inefficiencies in the operation of our networks and significantly impacting our financial results. For the peak season ahead, service remains our focus and we are making investments in resources and capacity to meet our customer’s needs,” noted Raj Subramaniam, FedEx Corp. president and chief operating officer.

Analyst Comments

“We had previewed 1Q as a challenging quarter for FedEx (FDX) but the 10%+ miss came in well below feared. The FY guide was cut by roughly the magnitude of the 1Q miss but we believe the 1Q issues (tough comps/normalization + cost inflation) actually get tougher from here,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We see EBIT growth through YE of FY21 driven by both margin improvement and vol. driven rev. growth which is helped by limited Airfreight capacity and an e-commerce surge, though yields are mixed. We continue to see secular threats to Parcel and remain sceptical that these trends will be sustainable but believe that until there is evidence of a reversal in earnings momentum, the stock can trade at its historical multiple (14-15x PE) on current EPS.”

FedEx Stock Price Forecast

Twenty-one analysts who offered stock ratings for FedEx in the last three months forecast the average price in 12 months of $350.42 with a high forecast of $381.00 and a low forecast of $270.00.

The average price target represents a 39.02% change from the last price of $252.07. From those 21 analysts, 17 rated “Buy”, three rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $250 with a high of $350 under a bull scenario and $125 under the worst-case scenario. The firm gave an “Equal-weight” rating on the multi-brand restaurant operator’s stock.

Several other analysts have also updated their stock outlook. Citigroup slashed the price target to $300 from $360. Baird cut the price objective to $310 from $350.

“As for our forecasts, we’ve been modelling an 11.8% adjusted ground margin for fiscal 2022 (which was likely more conservative than what was baked into the stock price), but we no longer consider that achievable considering that management expects the aforementioned cost pressures to persist (at a similar magnitude) in the fiscal second quarter,” noted Matthew Young, Equity Analyst at Morningstar.

“It sounded to us like the firm will be able to mitigate some of these headwinds in the second half, though it cautioned that elevated wage rates are not likely to budge.”

Earnings Week Ahead: Lennar, Autozone, FedEx, Nike and Costco Wholesale in Focus

Earnings Calendar For The Week Of September 20

Monday (September 20)

IN THE SPOTLIGHT: LENNAR

Lennar Corp, a home construction and real estate company, is expected to report earnings per share of $3.27 in the fiscal third quarter, which represents year-over-year growth of over 54% from $2.12 per share seen in the same period a year ago.

The Miami, Florida-based company would post year-over-year revenue growth of nearly 24% to around $7.3 billion. For four quarters in a row, the company has exceeded expectations on earnings per share.

“Shares of Lennar have outperformed the industry so far this year. The company is benefiting from effective cost control and focus on making its homebuilding platform more efficient, which in turn resulted in higher operating leverage. Higher demand for new homes backed by declining mortgage rates and low inventory levels bodes well. Focus on the lighter land strategy to boost free cash flow will bolster the balance sheet and thereby drive returns,” noted Analysts at ZACKS Research.

“Moreover, it has provided strong fiscal Q3 homebuilding gross margin guidance, suggesting 420 basis points (bps) increase at mid-point. Also, it has lifted average selling price and margin expectation for fiscal 2021, indicating 6% and 400bps year-over-year growth. However, higher land, labor and material costs are concerning. This may exert pressure on the company’s upcoming quarters as well.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE SEPTEMBER 20

Ticker Company EPS Forecast
LEN Lennar $3.27
HRB H&R Block -$0.34

 

Tuesday (September 21)

IN THE SPOTLIGHT: AUTOZONE, FEDEX

AUTOZONE: The Memphis, Tennessee-based auto parts retailer is expected to report its fiscal fourth-quarter earnings of $29.71 per share, which represents a year-over-year decline of about 4% from $30.93 per share seen in the same period a year ago.

Autozone (AZO) is our top pick in DIY Auto. We see it as a high-quality retailer with the ability to compound earnings/FCF growth over time. While not immune to a tougher macro backdrop (fewer miles driven), we believe AZO is best positioned through any recession given its leading exposure to the more defensive DIY segment (~80% of sales). In addition, its DIFM growth was accelerating pre-COVID and we think it can gain more share in that segment going forward. In our view, ongoing share gains coupled with solid expense management should allow AZO to overcome headwinds from less driving in the near- to medium-term. These advantages seem priced in currently.”

FEDEX: The Memphis, Tennessee-based multinational delivery services company is expected to report its fiscal first-quarter earnings of $5.00 per share, which represents year-over-year growth of about 3% from $4.87 per share seen in the same period a year ago.

The delivery firm would post revenue growth of about 13% to $21.8 billion. In the last four quarters, on average, FedEx has beaten earnings estimates over 28%.

“August quarter remained strong, although we are seeing some delays in shipments, which we expect management to address,” noted Helane Becker, equity analyst at Cowen.

“We are approaching the peak shipping season and expect to see ~50K new hires to handle what is likely to be record demand. Looking ahead, FedEx (FDX) should finally finish the TNT integration; European operations should show that.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE SEPTEMBER 21

Ticker Company EPS Forecast
AZO AutoZone $29.71
FDX FedEx $4.94
ADBE Adobe Systems $3.01
KGF Kingfisher £12.20
CBRL Cracker Barrel Old Country Store $2.33
NEOG Neogen $0.16

 

Wednesday (September 22)

Ticker Company EPS Forecast
KBH Kb Home $1.61
FUL HB Fuller $0.79
BBBY Bed Bath & Beyond Inc. $0.52
UNFI United Natural Foods $0.80
GIS General Mills $0.89

 

Thursday (September 23)

IN THE SPOTLIGHT: NIKE, COSTCO WHOLESALE

NIKE: The world’s largest athletic footwear and apparel seller is expected to report its fiscal first-quarter earnings of $1.12 per share, which represents year-over-year growth of about 18%, up from $0.95 per share seen in the same period a year ago.

The Beaverton, Oregon-based footwear retailer would post year-over-year revenue growth of over 18% to $12.6 billion.

“Investors are focused on the Vietnam factory closures impact on FY revenue guidance. Our analysis & mgmt guidance conservatism suggests minimal risk. But high valuation requires beat & raise quarters – stock price pullback possible & we’re buyers on any weakness. Reiterate Overweight; raise price target to $221,” noted Kimberly Greenberger, equity analyst at Morgan Stanley.

Nike (NKE) trades at the high end of its historical valuation range, & investors expect quarterly beats & guidance raises. Unchanged or lowered FY guidance on temporary, Vietnam-driven headwinds could result in a stock pullback. We would be buyers on any potential weakness.”

COSTCO WHOLESALE: The world’s fifth-largest retailer is expected to report its fiscal fourth-quarter earnings of $3.56 per share, which represents year-over-year growth of over 1.4% from $3.51 per share seen in the same period a year ago. The Fridley, Minnesota-based medical company would post revenue growth of about 18% to around $63 billion.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE SEPTEMBER 23

Ticker Company EPS Forecast
ACN Accenture $2.18
DRI Darden Restaurants $1.64
NKE Nike $1.12
COST Costco Wholesale $3.56
MTN Vail Resorts -$3.46
PRGS Progress Software $0.82

 

Friday (September 24)

Ticker Company EPS Forecast
CCL Carnival -$1.43
CUK Carnival -$1.45
CCL Carnival -£1.45

 

Preview: What to Expect From FedEx’s Q1 Earnings on Tuesday

The Memphis, Tennessee-based multinational delivery services company FedEx is expected to report its fiscal first-quarter earnings of $5.00 per share, which represents year-over-year growth of about 3% from $4.87 per share seen in the same period a year ago.

The delivery firm would post revenue growth of about 13% to $21.8 billion. In the last four quarters, on average, FedEx has beaten earnings estimates over 28%.

The company’s next earnings report is expected to be released on Tuesday, Sep 21 after market close.

Analyst Comments

“After 18 months of topline focus, attention turns to costs in F1Q22 as FedEx (like most other companies) grapples with labour and general inflation. With revenues running into tougher comps + normalizing trends as well (particularly in Ground), results could be challenging for the 2nd successive quarter,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We see EBIT growth through YE of FY21 driven by both margin improvement and vol. driven rev. growth which is helped by limited Airfreight capacity and an eCommerce surge, though yields are mixed. We continue to see secular threats to Parcel and remain skeptical that these trends will be sustainable but believe that until there is evidence of a reversal in earnings momentum, the stock can trade at its historical multiple (14-15x PE) on current EPS.”

FedEx Stock Price Forecast

Twenty-one analysts who offered stock ratings for FedEx in the last three months forecast the average price in 12 months of $351.32 with a high forecast of $397 and a low forecast of $270.

The average price target represents a 35.97% change from the last price of $258.38. From those 21 analysts, 17 rated “Buy”, three rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $270 with a high of $400 under a bull scenario and $100 under the worst-case scenario. The firm gave an “Equal-weight” rating on the health care company’s stock.

Several other analysts have also updated their stock outlook. Evercore ISI lowered the target price to $350 from $360. Citigroup slashed the price target to $360 from $365. JPMorgan cut the target price to $346 from $366.

“August quarter remained strong, although we are seeing some delays in shipments, which we expect management to address,” noted Helane Becker, equity analyst at Cowen.

“We are approaching the peak shipping season and expect to see ~50K new hires to handle what is likely to be record demand. Looking ahead, FedEx (FDX) should finally finish the TNT integration; European operations should show that.”

Check out FX Empire’s earnings calendar

Better Times Ahead for Fedex Shareholders

Fedex Corp. (FDX) has given up 100% of 2021 upside since May and is now trading at the same price level first struck in January 2018, more than 44 months ago. It’s also trading below the 200-day moving average for the first time since June 2020, highlighting a stomach-churning fall from grace after last year’s impressive 76% return. It’s no coincidence that selling pressure surged when the Delta variant exploded in the United States, forcing economists to lower 2021 GDP projections.

High Odds for Rally Into Year’s End

Fortunately for shareholders, the packaging giant’s fiscal Q1 2022 report next week offers a perfect opportunity for the stock to turn higher and enter a sizable fourth quarter recovery. Analysts predict the company will post a profit of $5.04 per-share on $21.84 billion in revenue. If met, earnings-per-share (EPS) will mark a 3.5% profit increase compared to the same quarter last year. Fedex fell 3.6% after June’s Q4 2021 report, despite beating estimates and raising fiscal year 2022 EPS above consensus.

BofA Securities remains highly bullish on the stock, posting a ‘Buy’ rating and $372 target. Analyst Ken Hoexter outlined his thesis, noting “We see significant tailwinds, led by pricing gains, margin improvement, continued e-commerce growth, and the return of B2B volumes. Its performance has been driven by robust volume growth, with Express and Ground average daily packages up +12% and +23% year-over-year. The company believes the pull-forward of e-commerce demand is unlikely to reverse post-COVID”.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating, based upon 22 ‘Buy’, 3 ‘Overweight’, and 7 ‘Hold’ recommendations. Notably, no analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $270 to a Street-high $397 while the stock enters the new trading week nearly $12 below the low target. This dismal placement should offer a perfect catalyst for buying pressure if Fedex meets or exceed estimates.

Fedex topped out near 275 in January 2018 and entered a decline that bottomed out at an 8-year low in double digits in March 2020. The subsequent uptick completed a round trip into the prior peak in October, yielding a breakout, followed by rangebound action that’s crisscrossed the contested level repeatedly in the last 11 months. Accumulation remains strong while relative strength readings hit oversold levels, marking a potent combination that favors higher prices in the fourth quarter.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Stalling Signs? Taking a Look Under the Hood of US Equities

Greetings. I hope this article finds you and yours well. Today, we are taking a look at some additional market indicators and internals to get an unbiased perspective on things.

First, I want to preface things by mentioning that I am not suggesting that I am fully bearish on the S&P 500 or stocks right now. However, I am taking more of a cautious stance at the moment.

 

Figure 1 – S&P 500 Index April 15, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Nothing new to see here. Just another pedestrian pullback to the 50-day SMA and a bounce back. This pattern has repeated itself several times since the pandemic lows in the $SPX. It won’t repeat itself forever – that would be too easy.

Since it is earnings season, let’s talk earnings multiples.

Feeling bullish? It can be challenging to get excited about an $SPX at 4400 with an estimated 46.40 P/E ratio (trailing twelve months). We are in the middle of earnings season, so we will have a clearer figure soon.

Figure 2 – S&P 500 PE Ratio 1870 – July 22, 2021. Source multpl.com

Stocks are not cheap by any measure, folks. However, with easy monetary policy and low rates, this is to be expected. What could be the catalyst to derail this freight train?

How about the Dow Transports? This index used to be talked about much more frequently and is followed closely by students of Dow Theory. We just don’t hear much analysis about it on Fox Business, CNBC, or Bloomberg these days.

The Dow Transports (Dow Jones Transportation Average) $TRAN is an index comprised of 20 companies.

Here are the index components and weighting as of December 2020:

Alaska Air Group, Inc. 2.55%

American Airlines Group Inc. 0.76%

Avis Budget Group, Inc. 1.80%

C.H. Robinson Worldwide, Inc. 4.61%

CSX Corporation 4.39%

Delta Air Lines, Inc. 1.94%

Expeditors International of Washington, Inc. 4.61%

FedEx Corporation 13.10%

J.B. Hunt Transport Services, Inc. 6.70%

JetBlue Airways Corporation 0.70%

Kansas City Southern 9.73%

Kirby Corporation 2.51%

Landstar System, Inc. 6.60%

Matson, Inc. 2.79%

Norfolk Southern Corporation 11.42%

Ryder System, Inc. 3.12%

Southwest Airlines Co. 2.26%

Union Pacific Corporation 9.91%

United Airlines Holdings, Inc. 2.11%

United Parcel Service, Inc. 8.39%

Figure 3- Dow Jones Transportation Index January 4, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Here, and in contrast to the Dow Jones Industrial Average, we can see that the Transports topped back on May 10, 2021. Proponents of Dow Theory would argue that this creates a lack of confirmation and that the subsequent highs in the Dow Jones Industrial Average are not valid due to this lack of confirmation.

What could be the reason for the stall in the Transports? Input Costs? While fuel costs have risen, what about the rise in retail spending? Is the stimulus-powered consumer pocket not enough to counterbalance the rising input costs?

If input costs are the reason for the stalling, what about the other companies that rely on raw materials to make their products? Recent inflationary data has not affected these companies’ stock prices yet (for the most part).

What if the Fed eases off the gas pedal?

While it is very difficult (if not impossible) to pick market tops (and I don’t advocate trying to do that), it is wise to look at certain market indicators to get an understanding of what is going on beneath the surface.

It is easy to look at the chart of the $SPX and see that it is moving higher, from the bottom left-hand corner of the chart to the top right-hand corner. However, that does not tell the whole story of what is happening in the US equity markets.

We will be monitoring the above and previously mentioned market internals and indicators for more clues in the coming days, weeks, and months. I think it is critical to be aware of metrics such as the above as the broader indices trade near all-time highs.

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For a look at all of today’s economic events, check out our economic calendar.

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

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This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

Today’s Market Wrap Up and a Glimpse Into Friday

An infrastructure deal was reached in Washington, D.C. and stocks were up on Wall Street. The S&P 500 set a new record high after rising fractionally to 4266.49. The broader market index last reached a new high in mid-June. The recent Fed-induced losses did not last long as investors decided to look at the market glass as half-full.

The Dow Jones Industrial Average isn’t too far from its new all-time high after tacking on about 1% in Thursday’s session. The Nasdaq was fractionally higher. Some of the standouts in today’s session include:

  • Tesla gained 3.5%, extending yesterday’s rally.
  • Caterpillar rose 2.6%, reclaiming some ground it lost on inflation and rate-hike fears last week.
  • FedEx stock is down in extended hours despite experiencing record Q4 earnings and revenue that increased 27%. The company swung to a profit after a quarterly loss in the year-ago period, reporting net income of USD 1.87 billion, or USD 6.88 per diluted share. The transportation company’s services have been in high demand throughout the pandemic, including the delivery of vaccines. The stock is seeing heavy options activity including bullish expectations for shares to gain as much as 18% by the July expiration of contracts.

Stocks to Watch

Nike stock is up 11% in after-hours trading after beating on the top and bottom lines with Q4 results. The company’s results were driven by a recovery in the North American region, where sales grew more than twofold YoY to a new peak of USD 5.38 billion. Nike also experienced robust results in China and its digital sales segment. The trend of comfortable clothing is persisting even after the lockdowns have lifted.

In addition, The Trade Desk, an ad stock, gained 17% today and is trading higher in the after-hours. The stock is benefiting from Google’s decision to delay its move to do away with cookies until 2023. Google is making the change in response to privacy concerns and was initially expected to remove the tracking tech next year.

Look Ahead

On the economic front, personal income and spending for May will be released on Friday. Now that the government stimulus checks are a thing of the past, the expectations are for a further decline in personal income. It will likely not be of the same magnitude as the 13.1% MoM drop in April over March levels, but economists, nonetheless, are expecting a decline. Personal spending is expected to rise slightly.

Amazon.com Nears Major Breakout

Amazon.com Inc. (AMZN) has been treading water since topping out above 3,500 in September 2020 but is nearing completion of a major breakout pattern, just in time for this year’s Prime Day. While the two events aren’t really connected, the convergence signals better times for shareholders of the e-commerce juggernaut because the pattern projects a strong uptrend that could eventually top 5,000.

New Revenue Sources

The stock posted a phenomenal 76% return in 2020, underpinned by pandemic lockdowns that forced smaller competitors to close their doors or rush to upgrade online sales portals. The rally ran out of steam in September, giving way to a broad rectangular pattern that’s now carved the outline of an inverse head and shoulder breakout pattern. Taken together with price action since 2018, the current uptick could signal the start of the final leg of an Elliot 5-wave advance.

Amazon initiatives unrelated to online sales could generate substantial income in coming years. For starters, it just signed contracts with multiple companies to provide telehealth services through Amazon Care, which will dovetail nicely with the new Amazon Pharmacy online prescription fulfillment service. It’s also working with the U.S. Postal Service to deliver cargo and could soon compete directly with FedEx Corp. (FDX) and United Parcel Service Inc. (UPS).

Wall Street and Technical Outlook

Wall Street consensus hasn’t budged in the last three months, with a ‘Buy’ rating based upon 42 ‘Buy’, 6 ‘Overweight’, and 1 ‘Hold” recommendation. No analysts are recommending that shareholders close positions, despite last year’s outsized share gains. Price targets currently range from a low of $3,775 to a Street-high $5,500 while the stock is set to open Monday’s session more than $275 below the low target. This is a perfect placement for a rapid escalation to the upside.

Amazon broke out above the 2018 high near 2,000 in April 2020 and took off in a strong uptrend that posted an all-time high at 3,552.25 in September. The stock then entered a lateral consolidation, holding two tests at support near 2,850. It returned to resistance in April and pulled back, carving the last leg of an inverse head and shoulders pattern, and is now trading just 60 points below resistance. Taken together with emerging buy cycles, this price action greatly raises odds for a breakout.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.