Best Stocks, Crypto, and ETFs to Watch – Visa, Shiba Inu and SPDR S&P Retail ETF (XRT) in Focus

Fears of a March 2020 reprise will impact market sentiment and price action in the new trading week, as evidenced by big moves in COVID beneficiaries and casualties during Friday’s holiday-shortened U.S. session. A contrary strategy makes more sense at this point than chasing the fearful crowd, looking for fresh sell signals on pandemic cast-offs that include Peloton Inc. (PTON) and Zoom Video Communications Inc. (ZM) while waiting for tradable lows in travel and digital transaction plays, like United Airlines Holdings Inc. (UAL) and Visa Inc. (V).

Dow component Salesforce Inc. (CRM) is the third strongest performer in the venerable index, gaining nearly 28% year-to-date. The stock broke out earlier this month above the rally peak posted after the company joined the index in August 2020 and pulled back to test new support during Friday’s rout. Tuesday’s post-market earning report should decide whether or not the breakout is sustainable, with the company expected to post a profit of $0.92 per-share on $6.80 billion in revenue.

Crypto assets are under pressure along with growth stocks after the Omicron news, illustrated by Bitcoin 10%+ decline to a 7-week low on Friday. However, lowly Shiba Inu held above Wednesday’s low during that session and has continued to trade above short-term support near $0.00003800 over the weekend. This bullish divergence could come into play because that price level also marks support at the .618 Fibonacci retracement of the powerful uptrend between October 2020 and October 2021.

Brick and mortar retailers got sold aggressively ahead of Black Friday, with popular chains that include Nordstrom Inc. (JWN) and Gap Inc. (GPS) reporting weak margins and issuing cautious outlooks. Taken together with the COVID threat, SPDR S&P Retail ETF (XRT) could offer a low risk short sale opportunity with 10% to 20% short-term downside. Better yet, the fund just failed a breakout above the January peak near 100, potentially signaling a long-term top and significant change in trend.

The Natural Gas futures contract rose 8.48% on Friday while the Crude Oil contract fell more than 13%. This bullish divergence highlights growing shortages across Europe and Asia and the potential for the long-suffering commodity to break out above the 7-year high posted in October. Cheniere Energy Inc. (LNG) looks like an excellent way to play this long-term opportunity, with the stock trading at an all-time high after breaking out above 2014 resistance in the mid-80s in September.

For a look at this week’s economic events, check out our earnings calendar.

Disclosure: the author held Visa in a family account at the time of publication. 

Why Gap Stock Is Down By 23% Today

Gap Stock Falls After Company Cuts Full-Year 2021 Guidance

Shares of Gap found themselves under significant pressure after the company reported its third-quarter results. Gap reported revenue of $3.9 billion and GAAP loss of $0.40 per share, missing analyst estimates on both earnings and revenue.

The company stated that significant supply chain constraints impacted comparable sales and net sales in the quarter. Compared to pre-coronavirus levels, third-quarter comparable sales grew by 5% while net sales declined by 1%.

In addition, Gap revised its full-year 2021 guidance due to supply chain problems. The company expects that it will report full-year earnings of $0.45 – $0.60 per share on a GAAP basis. Adjusted earnings per share are projected to be in the $1.25 – $1.40 range. This is a huge change compared to the company’s previous expectations. Back when the company released its second-quarter report, it expected to report full-year adjusted earnings of $2.10 – $2.25 per share.

What’s Next For Gap Stock?

Gap’s new guidance is well below current analyst consensus, so it’s not surprising to see that the stock is down by 23% during today’s trading session.

Supply chain problems and higher costs put pressure on the whole industry, and it remains to be seen whether these problems will be solved in the upcoming quarters.

Analyst estimates will likely drop like a rock in the upcoming weeks, which may put additional pressure on Gap stock. It should be noted that supply chain problems come at a very unfortunate moment when companies like Gap should make money during the holiday season.

The company’s guidance disappointed traders, and it is clear that fourth-quarter performance will be well below previous expectations. The stock’s RSI has dropped into the oversold territory due to the major pullback, but it is not clear whether speculative traders will rush to buy Gap shares as the company may have no good news to report in the next few months.

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

Earnings to Watch in Holiday-Shortened Week: Zoom, Medtronic, Best Buy, Dollar Tree and Deere in Focus

Earnings Calendar For The Week Of November 22

Monday (November 22)

IN THE SPOTLIGHT: ZOOM

The San Jose, California-based communications technology company Zoom is expected to report its fiscal third-quarter earnings of $1.09 per share, which represents year-over-year growth of over 10% from $0.99 per share seen in the same period a year ago.

The company, which provides video telephony and online chat services through a cloud-based peer-to-peer software platform, would post revenue growth of over 30% to $1.02 billion. Zoom will report 3Q FY22 earnings after market close on Monday, November 22.

“Investors lean cautious heading into FQ3 print given ongoing concerns around SMB churn, particularly as other WFH names have underperformed. View FQ4 print as having more favourable risk/reward, but given cautious positioning, could see outperformance if SMB churn is better than expected,” noted Meta Marshall, equity analyst at Morgan Stanley.

Zoom has established its position as the leader in video conferencing, now a growth market. The company has a meaningful competitive moat built on more than just architecture. Position within customers makes an attractive opportunity to expand into the broader UC market. Early wins are encouraging. Opportunities to expand the platform remain. Manageable churn post-COVID as a move to hybrid work setups.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE NOVEMBER 22

Ticker Company EPS Forecast
JKS JinkoSolar Holding Co. Ltd. ADR -$0.07
GRFS Grifolsbarcelona $0.29
JOBS 51job $4.45
GGAL Grupo Financiero Galicia $0.68
ZM Zoom Video Communications $1.09
A Agilent $1.18
KEYS Keysight Technologies $1.64
URBN Urban Outfitters $0.83
BMA Banco Macro $1.22
TLK Telekomunikasi Indns Tbk Prshn Pp Pt $0.46

Tuesday (November 23)

IN THE SPOTLIGHT: MEDTRONIC, BEST BUY, DOLLAR TREE

MEDTRONIC: The medical device company is expected to report its fiscal second-quarter earnings of $1.29 per share, which represents year-over-year growth of over 26% from $1.02 per share seen in the same period a year ago.

The company has beaten earnings per share (EPS) estimates all times in the last four quarters with a surprise of over 13%. The Fridley, Minnesota-based medical company would post revenue growth of nearly 4% to $7.9 billion.

Medtronic (MDT) commentary and guide should act as a barometer for MedTech recovery through the balance of ’21 and into ’22. More muted recovery through October could incrementally pressure 2FQ, with the path to 9% y/y FY22 growth looking increasingly challenging in the face of recent sector headwinds,” noted Cecilia Furlong, equity analyst at Morgan Stanley.

BEST BUY: The Richfield, Minnesota consumer electronics retailer is expected to report its fiscal third-quarter earnings of $1.93 per share, which represents a year-over-year decline of over 6% from $2.06 per share seen in the same period a year ago.

The consumer electronics retailer’s revenue would decline 2.5% to $11.56 billion down from $11.85 billion a year earlier. It is worth noting that in the last two years the company has delivered an earnings share price (EPS) at all times.

“Market looking for a 4-5% comp in Q3 vs cons at -1.5%. We see upside to 2H’21 numbers and expect a raised full-year guide as demand remains strong. That said, momentum is slowing and the category could shrink in ’22/’23. The stock is +15% in the last month, and a Q3 beat and raise seems priced in,” noted Simeon Gutman, equity analyst at Morgan Stanley.

DOLLAR TREE: The Chesapeake, Virginia-based company is expected to report earnings of $0.96 per share in the third quarter, down over 30% from $1.39 per share seen in the same period a year ago. But the discount variety stores that sells items for $1 or less would post revenue growth of nearly 4% to $6.4 billion.

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

Ticker Company EPS Forecast
CPG Compass Group £17.93
BYG Big Yellow £19.26
MDT Medtronic $1.29
BBY Best Buy $1.93
DLTR Dollar Tree $0.96
J Jacobs Engineering Group Inc $1.57
BURL Burlington Stores $1.24
SJM J.M. Smucker $2.04
DKS Dick’s Sporting Goods $2.03
PLAN Progressive Planet -$0.11
AEO American Eagle Outfitters $0.60
ANF Abercrombie & Fitch $0.65
DY Dycom Industries $0.75
JWN Nordstrom $0.56
NOAH Noah $2.95
VMW VMware $1.54
HPQ HP $0.88
GME GameStop -$0.51
CPB Campbell Soup $0.81
GPS Gap $0.50
SVT Severn Trent £49.79

Wednesday (November 24)

IN THE SPOTLIGHT: DEERE

Deere & Company, the world’s largest maker of farm equipment, is expected to report its fiscal fourth-quarter earnings of $3.92 per share, which represents year-over-year growth of over 64% from $2.39 per share seen in the same period a year ago.

The agricultural, construction and forestry equipment manufacturer would post revenue growth of more than 20% to $10.5 billion. It is worth noting that in the last two years the company has delivered an earnings share price (EPS) at all times.

“Despite positive secular demand fundamentals within both the Ag and Construction businesses we are lowering near-term estimates for Deere (DE) (F4Q21/F1Q22) to better reflect the impact from lost production in the US stemming from supplier bottlenecks and the labour strike,” noted Stephen Volkmann, equity analyst at Jefferies.

“We assume any lost production elongates the cycle, and we maintain our above Consensus estimates for 2023 noting additional upside from the infrastructure bill has yet to be factored into outlooks.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE NOVEMBER 24

Ticker Company EPS Forecast
UU United Utilities £25.21
JMAT Johnson Matthey £44.57
BVIC Britvic £31.37
DE Deere & Company $3.92
TCOM Trip.com Group Ltd $0.11
KC Kutcho Copper -$1.53

Thursday (November 25)

No major earnings are scheduled for release. The U.S. stock market will be closed for the Thanksgiving holiday.

Friday (November 26)

No major earnings are scheduled for release. The U.S. stock market will be closed for the Thanksgiving holiday.

Today’s Market Wrap Up and a Glimpse Into Friday

Stocks turned lower on the heels of a record session for the S&P 500 and Nasdaq. Today the Dow Jones Industrial Average fell nearly 200 points while the S&P 500 and tech-heavy Nasdaq each fell about 0.6%.

The mood on Wall Street went south after a development out of Kabul in which U.S. troops and Afghans were killed in an explosion at the airport. Investors are also watching and waiting for Federal Reserve Chairman Jerome Powell to tip his hand on economic stimulus and inflation at the Jackson Hole symposium on Friday.

Stock index futures flipped green in extended-hours trading. The Dow, S&P 500 and Nasdaq all reclaimed some ground ahead of Friday’s session with all eyes on Jackson Hole.

Stocks to Watch

  • Shares of apparel retailer The Gap are rallying 6% in after-hours trading on better-than-expected quarterly results. Sales rose to more than USD 4 billion and The Gap also raised its full-year earnings outlook despite supply chain issues, the threat of the delta variant and inflation risks.
  • Southwest Airlines is trading lower after the company announced it would be slashing the number of flights starting next month. The company is changing its schedule in response to backlash from staff who were spread too thin. Southwest had already been suffering from weaker demand as a result of a spike in COVID cases.
  • Shares of meme stock AMC Entertainment tumbled 8% on the day. Shares were starting to recover with modest gains in the after-hours market and no clear catalyst either way.
  • Shares of U.S. automaker Ford fell 2% seemingly in response to chip problems that continue to plague the industry.
  • A technical glitch allowed FBI agents to view secret evidence data using Palantir Technologies software that they would otherwise not have been permitted to see.  On social media, users were quick to defend Palantir and blame the agents. Shares of Palantir gained 2% on the day.

Look Ahead

The Federal Reserve’s Jackson Hole meeting is in focus in anticipation of chairman Powell’s speech. The theme of this year’s symposium, which will take place virtually, is “Macroeconomic Policy in an Uneven Economy.”

Despite Thursday’s declines, the three major stock market indices are poised to finish the month of August with gains.

Gap At Major Resistance Ahead of Earnings

Gap Inc. (GPS) is trading higher by more than 1% in Tuesday’s pre-market in reaction to bullish analyst commentary just two days before the Q1 2021 earnings release, when the apparel chain is expected to post a loss of $0.12 per-share on $3.4 billion in revenue.  If met, the loss-per-share will mark a substantial improvement over the $2.51 loss posted in the same quarter last year when the pandemic forced retail shutdowns all around the world.

Long-Term Recovery Plan

The company owns and/or franchises brick and mortar storefronts in six continents through divisions that include Old Navy, Gap, Athleta, and Banana Republic. Steep 2020 losses forced the retailer to release a long-term recovery plan that includes a reduction in poorly-performing North American operations, limiting mall exposure, and investing in digital expansion. With this plan now in place, investors are likely to forgive a Q1 loss as long as it marks a major improvement over atrocious Q4 results.

Telsey Advisory Group analyst Dana Telsey raised her price target on Tuesday morning, noting that long-term initiatives  announced in October should “contribute to improved profitability” but admits that “fourth quarter results are a continued reminder that significant challenges remain at the Gap and BR brands. Therefore, we maintain our ‘Market Perform’ rating, but given our increased estimates, we are raising our price target to $37”.

Wall Street and Technical Outlook

Wall Street consensus remains skeptical, with a ‘Hold’ rating based upon 4 ‘Buy’, 17 ‘Hold’, and 1 ‘Underweight’ recommendation. However, no analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $25 to a Street-high $40 while the stock is set to open Tuesday’s session more than $1 above the median $32 target. This placement suggests the stock is fairly-valued, lowering upside potential after earnings.

Gap posted an all-time high in the mid-40s in 2014 and broke down one year later, entering a steep downtrend that bottomed out during 2020’s pandemic decline. The subsequent uptick carved a vertical pattern that just reached heavy resistance at the 2015 breakdown and .786 Fibonacci retracement levels. Bears have the upper hand in this configuration, raising odds for a reversal and long-overdue intermediate correction.

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. 

Apparel Retailer Gap Tops Q4 Earnings Estimates; Forecasts Sales Growth in 2021

San Francisco, California-based apparel retailer Gap Inc reported better-than-expected earnings in the fourth quarter and said it expects this year’s sales to reflect mid-to high-teens growth versus last year, sending its shares up over 4% in extended trading on Thursday.

The U.S. specialty apparel retailer said its comparable sales were flat in the quarter, including a 49% increase in online sales and total net sales fell 5% due to store closures and COVID-19 impacts. Store sales declined by 28% in the quarter, with impacts from the pandemic and strategic closures noted above.

Gap reported earnings per share of 28 cents, 9 cents more than Wall Street’s expectations. For the fiscal year 2021, the company expects diluted earnings per share to be in the range of $1.20 to $1.35.

Following this optimism, Gap shares, which surged over 14% in 2020, rose over 4% to $25.42 in after-trading hours on Thursday.

“4Q was mixed – with signs of the company’s Power Plan taking hold in the form of significant occupancy leverage, lower markdowns, and a better trend at the core Gap brand, offset by a moderating trend at Old Navy.  Margin enhancing initiatives are encouraging, but we look for greater clarity around Old Navy, which remains the key profit driver for GPS. Reiterate Hold,” said Janine Stichter, equity analyst at Jefferies.

Gap Stock Price Forecast

Five analysts who offered stock ratings for Gap in the last three months forecast the average price in 12 months of $25.40 with a high forecast of $28.00 and a low forecast of $22.00.

The average price target represents a 0.08% increase from the last price of $25.38. From those five analysts, one rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $29 with a high of $42 under a bull scenario and $14 under the worst-case scenario. The firm gave an “Equal-weight” rating on the apparel retail company’s stock.

“4Q GM expansion & controlled SG&A spend bring the 10% EBIT margin target back into view. But management must deliver sales acceleration for positive EPS revisions, the key unlock to further stock price appreciation given high valuation. Raise price target to $29; stay Equal-weight as we await signs of revenue acceleration,” said Kimberly C Greenberger, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $32 from $30. RBC upped the price objective to $30 from $28. B Riley increased the stock price forecast to $27 from $22. Jefferies raised the price target to $25 from $24. UBS upped the target price to $25 from $22.

Analyst Comments

GPS is in need of significant transformation. However, we are more positive on the LT forecast given new management’s commitment to fleet and corporate downsizing. The separation work and COVID-19 were the catalysts GPS needed to downsize its business, as reflected by management’s comprehensive plan for the business outlined at its 2020 Investor Day,” said Morgan Stanley’s Greenberger added.

“Our fundamental concerns remain (falling store traffic, eComm disintermediation, declining brand health, apparel price deflation, falling margins), but are exacerbated in the NT due to COVID-19. A portion of GPS‘ portfolio value proposition is less competitive, as Gap brand and BR require significant transformation; ON and Athleta are bright spots.”

Check out FX Empire’s earnings calendar

Thanksgiving Week: Retailers’ Roaring Return?

Typically, Black Friday sales are accompanied by scenes of bargain-hunters camping outside popular retail outlets, braving the cold, only to bum-rush the store once it’s open. Sometimes, overly eager shoppers literally bust down doors and even get into fist fights over the best deals.

This year, things are set to be very different, due to the Covid-19 resurgence across America.

Instead of the usual frenzy at the physical stores, the stampede for bargains has been very apparent in the stock markets. Investors have made a beeline towards companies that had been beaten down by the pandemic, as they price in a return to in-person shopping, enabled by a Covid-19 vaccine.

Such a narrative has sent stocks in mall-based retailers surging on Monday:

  • Macy’s soared 15 percent (month-to-date gains: 67.63 percent). Macy had also reported a better-than-expected Q3 performance last week.

  • American Eagle Outfitters jumped 7.32 percent (month-to-date gains: 32.6 percent). The company is set to release its Q3 earnings after US markets close on Tuesday.

  • Gap advanced 6.93 percent (month-to-date gains: 33.98 percent). Gap is also set to unveil its quarterly results after US markets close on November 24th.

  • Urban Outfitters climbed 4.44 percent (month-to-date gains: 41.72 percent), before announcing after markets closed on Monday that its Q3 earnings-per-share exceeded estimates.

Overall, the S&P 1500 Apparel Retail Index has surged by nearly 86 percent since its March low, and is now a mere 2.14 percent away from its highest ever closing price, posted on February 20th this year. Still with the stocks of many of these so-called “nonessential retailers” now reaching overbought territory, perhaps a pullback can be expected in the near-term.

Pandemic-fueled bonanza

This wave of optimism has been fanned by a report from the National Retail Federation, which expects US holiday sales to post a 3.6 to 5.2 percent growth compared to 2019’s US$729.1 billion that was spent during the year-end shopping season. The industry’s leading trade group expects a “strong finish” to what has been a tumultuous 2020, given that Americans who were not able to spend on other items such as vacations and in-person entertainment (sporting events, movies, etc.) will instead pour between US$755.3 billion to US$766.7 billion into their year-end shopping spree. Such an outlook augurs well for the overall US retail sales figure, which could only muster a mere 0.3 percent growth in October compared to the month prior.

Retailers have to deliver results

However, execution risks remain. It remains to be seen how well these retailers can handle the incoming swarm of orders, be it for curbside pickup or direct shipping. Amazon has already braced itself by hiring over 25,000 more workers for its warehouses this year, while adding an extra 100,000 seasonal workers to handle the expected tsunami of online orders.

And the expected rebound in footfall isn’t assured. The pandemic may have left longer-lasting scars, potentially enforcing a lasting shift in shopping habits. Consumers may feel a lot more reluctant to return to in-person shopping and may have grown accustomed to buying items online. And with a spate of job losses in the US economy, with weekly jobless claims still over three times more than pre-pandemic levels while the unemployment rate remains close to seven percent, American consumers’ purchasing power may need more time to recover.

“Dark Winter” ahead?

Still, a fresh round of US fiscal stimulus by the incoming Biden administration could help dampen some of these downside risks on US retail activity. Otherwise, once the year-end shopping spree fades, these retailers might have been to brave a long, cold winter before they can welcome warm bodies back into their stores once more, to justify the eye-popping gains in their shares of late.

Written on 24/11/20 08:00 GMT by Han Tan, Market Analyst at FXTM

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