Stock Pick Update: August 5 – August 11, 2020

The broad stock market has extended its medium-term uptrend in the last five trading days (July 29 – August 4). The S&P 500 index broke above its late July local highs along 3,280 level and it crossed the 3,300 mark. More than four months ago on March 23, the market sold off to new medium-term low of 2,191.86. It was a stunning 35.4% below February 19 record high of 3,393.52. The corona virus and economic slowdown fears erased more than a third of the broad stock market value. But the index has rallied back closer to record high again. It is currently just 2.6% below the mentioned February’s record high.

The S&P 500 index has gained 2.46% between July 29 and August 4. In the same period of time our five long and five short stock picks have gained 0.75%. So stock picks were relatively weaker than the broad stock market. Our long stock picks have gained 0.81% and short stock picks have resulted in a gain of 0.68%.

There are risks that couldn’t be avoided in trading. Hence the need for proper money management and a relatively diversified stock portfolio. This is especially important if trading on a time basis – without using stop-loss/ profit target levels. We are just buying or selling stocks at open on Wednesday and selling or buying them back at close on the next Tuesday.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • August 4, 2020
    Long Picks (July 29 open – August 4 close % change): IFF (-2.27%), WBA (+0.24%), ED (-0.50%), XOM (-0.55%), WU (+7.13%)
    Short Picks (July 29 open – August 4 close % change): HES (+1.34%), XLNX (+2.30%), SPGI (-0.71%), APD (-3.33%), KO (-3.01%)Average long result: +0.81%, average short result: +0.68%
    Total profit (average): +0.75%
  • July 28, 2020
    Long Picks (July 22 open – July 28 close % change): MLM (-5.87%), MCD (+1.57%), INTC (-19.84%), XOM (-1.36%), IRM (+2.58%)
    Short Picks (July 22 open – July 28 close % change): COG (-0.38%), WY (+6.86%), SPGI (-1.77%), APD (-0.40%), HD (+1.02%)Average long result: -4.59%, average short result: -1.07%
    Total profit (average): -2.83%
  • July 21, 2020
    Long Picks (July 15 open – July 21 close % change): DOW (-1.40%), INTC (+2.83%), MCD (-0.47%), XOM (-0.84%), HST (-1.54%)
    Short Picks (July 15 open – July 21 close % change): COG (+4.57%), VNO (-5.52%), AON (+2.30%), LIN (+1.36%), AAPL (-2.01%)Average long result: -0.28%, average short result: -0.14%
    Total profit (average): -0.21%

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, August 5 – Tuesday, August 11 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (August 5) and sold or bought back on the closing of the next Tuesday’s trading session (August 11).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s.

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

  • buys: 1 x Technology, 1 x Consumer Staples, 1 x Materials
  • sells: 1 x Energy, 1 x Real Estate, 1 x Financials

Contrarian approach (betting against the recent trend):

  • buys: 1 x Energy, 1 x Real Estate
  • sells: 1 x Technology, 1 x Consumer Staples

Trend-following approach

Top 3 Buy Candidates

V Visa Inc. – Technology

  • Stock remains above two-month-long upward trend line
  • Potential medium-term uptrend continuation
  • The resistance level of $200

WBA Walgreens Boots Alliance, Inc. – Consumer Staples

  • Potential short-term uptrend continuation pattern – bull flag
  • The resistance level of $44 (short-term upside profit target)
  • The support level remains at $38-39

ECL Ecolab, Inc. – Materials

  • Stock remains above the support level of $185
  • Potential medium-term bull flag pattern
  • The resistance level and upside profit target level at $205-215

Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Technology, Consumer Staples and Materials sectors were relatively the strongest in the last 30 days. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

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

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’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. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Middle-Week Screening: Gold Glitters and Shines!

Overview and trends

US stocks rose on Monday as investors looked to major earnings on deck this week and awaited the release of the GOP’s coronavirus stimulus plan. Senate Majority Leader Mitch McConnell finally said that Republicans were ready to present their long-awaited $1 trillion COVID-19 package details, as Democrats remained wary. S&P 500 ended up 0.74%, while Dow Jones Industrial Average was higher 0.44%, and Nasdaq Composite shot up 1.86%.

US stock indices ended down from 0.65% to 1.27% yesterday as investors mulled Senate Republicans’ coronavirus stimulus package and a slew of very surprising earnings reports.

The U.S. republicans continued debating on its fiscal relief plan most of the day. The projected $1 trillion packages will include another round of $1,200 payment checks and additional funds for small-business loans.

A large portion of reporting yesterday companies sadly missed their earnings figures, with most disappointments coming from 3M, McDonald’s and even biotech Pfizer. Oil tumbled through the session, with West Texas Intermediate crude dropping as much as 1.5%, to $41.10 per barrel.

Gold was the leading instrument in the 1st half of trading week. Gold prices took a stratospheric leap last week, jumping from the previous week’s support test at $1800 an ounce to the $1900 level that hasn’t been traded since 2011.

Next day Gold jumped to a record high of $1944 per ounce, driven by an uptick in new U.S. coronavirus cases that have added to economic uncertainty. Shares of Moderna surged after the company said it received an additional $472 million in funding for its COVID-19 vaccine.

Trading ideas

According to a new court filing, multiple California state offices are actively investigating Amazon (AMZN) over worker safety concerns as the coronavirus continues to rage throughout the U.S. An eighth Amazon employee has died of COVID-19, and the virus has spread quickly through clusters of employees at factory floors and warehouses nationwide where social distancing isn’t enforced. Amazon’s own shipping centers have reported outbreaks, including one in the Pocono Mountains and another in Oregon.

The earnings date for Amazon is July 31, an overwhelming majority of high-profile analysts think the numbers will be as stellar as never before. Amazon’s average EPS estimate is $3.6 versus $5.01 it actually earned last quarter. It’s easy to guess that Amazon will beat that number indeed. However, even the bigger question will be how the tech giant is going to address these mounting allegations about poor safety of its employees. It looks like this time around it’s no longer just curiosity.

Global payments processor Visa reports earnings today, on July 29, and it will be more than just one more set of quarterly financial numbers. Investors will get a direct insight into how consumer spending is being affected by the pandemic and an uncertain economy. This quarter revenue for the payments processing giant are expected to drop by roughly 17% to $4.81 billion versus $5.84 billion a year ago. This anticipated drop has a lot to do with lower transaction volume as many stores were closed throughout the quarter. With that said, there is optimism for a potential beat driven by increased digital payment volume as more and more people shopped online.

Indeed, dealing with paper money has now become not only unsafe but also unsanitary. So VISA’s performance will be more or less accurately reflecting the real global consumer spending, and households’ entire propensity to consume, and how efficient the world’s largest central banks’ and governments’ efforts to offset the COVID-19 impact. So fasten your seatbelts!

The Australian dollar has rallied rather significantly on Monday, showing signs of life yet again as the U.S. dollar continues to get hammered against most currencies. Aussie pierced below 1.40 mark, and now this level became its support, rather than resistance level. A couple of times over the past several trading sessions it tried to approach it, but the big return looked invariably spectacular.

So, this level now can be seen as a cemented support for the Australian currency. Its further growth towards 1.35 is highly dependent on the continuation of the gold rally. Australia is the second-largest gold producer in the world with 325 tons per year, right after China. By the way, 2019 was a record year for Australian gold production.

So, the momentum the Australian currency has been gaining lately is not just a coincidence, and if greenback keeps getting softer, and metals keep getting stronger, it would be hard to find a better choice than to take a chance on the Aussie.

One of the less-talked-about but more potent beneficiaries of this year’s gold rally Kinross Gold (KGC) is scheduled to announce Q2 earnings results today, on July 29th, after market close.

The consensus EPS estimate is 13 cents and the consensus revenue estimate is around $1 billion (assuming a 20% growth Year-over-Year). Over the last 2 years, Kinross Gold has beaten EPS estimates 63% of the time and has beaten revenue estimates 50% of the time.

Kinross is gaining from higher production at its two main deposit fields, which already had shown strong momentum in this year’s first quarter. Strong production is likely to have continued in the second quarter. Further, gold prices have been soaring this year making it the most attractive safe-haven asset. Gold prices have gained around 13% in the second quarter — the highest quarterly percentage increase in more than four years.

by Vladimir Rojankovski, Grand Capital Chief Analyst

Visa Q3 Profit Plunges 23% as Consumers Cut Spending Amid COVID-19 Crisis; Target Price $210

Visa Inc, the world’s largest card payment company, reported that its quarterly profit plunged 23% in the third quarter of fiscal 2020 as large-scale layoffs due to the lockdowns, aimed at limiting the spread of coronavirus, dented consumer spending.

The global technology payment company, which has a presence in more than 200 countries, said in the quarter ended June 30, its net income fell to $2.4 billion, or $1.07 per share, compared to $3.10 billion, or $1.37 per share, seen a year earlier.

Just after the result, Visa shares fell about 2% after market hours, closed 0.1% lower at $196.74 on Tuesday. So far, the deadly virus has infected more than 16.57 million people in 210 countries and killed over 650 thousand.

“Visa’s F3Q20 results were slightly ahead of our expectations, but positive US volume trends seem to flatten vs. late June as we had feared. Cross-border volumes have stabilized but remain under pressure – a trend we expect will continue through FY20. We expect the stock to be range-bound near term,” said George Mihalos, equity analyst at Cowen.

Visa’s payments volume for the three months ended June 30, 2020, decreased 10% over the prior year on a constant-dollar basis and total processed transactions, which represent transactions processed by Visa, were 30.7 billion, a 13% decrease over the prior year.

The company said its cross-border volume excluding transactions within Europe, which drive their international transaction revenues, declined 47% on a constant-dollar basis. Including cross-border transactions within Europe, the decline on a constant-dollar basis was 37% in the quarter. Net revenues fell 17% to $4.8 billion.

“Domestic recovery appears to have stalled and no sign of a bounce in cross-border in updated volumes through July 21st. The uptrend in domestic volumes has stalled July MTD, with growth rates showing modest deceleration relative to the start of the month likely the result of recently tightened COVID-related restrictions in several key states,” said Trevor Williams, equity analyst at Jefferies, who gave a price target of $185.

“Interestingly, while card-present growth has remained largely flat relative to 2H June, card not present growth (ex-Travel) has decelerated modestly from early in July, though as stayed in a fairly consistent band of +30-40% y/y growth since early June. Cross-border growth remains depressed excluding intra-Europe transactions, down more than 40% y/y MTD in July, which marks a slight deceleration relative to trends in early June.”

Executive comment

“We continue to focus on managing our business for the medium and long-term despite the challenges of the global pandemic. In the quarter, we were pleased to see strong growth in areas that are strategically important, including eCommerce, tap to pay, new flows and value-added services. We remain committed to our strategy and are thoughtfully investing to fuel Visa’s future performance,” said Chairman and Chief Executive Officer Alfred F. Kelly.

Visa stock forecast

Nineteen analysts forecast the average price in 12 months at $211.58 with a high forecast of $247.00 and a low forecast of $188.00. The average price target represents a 7.54% increase from the last price of $196.74. From those 19, 17 analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $203 with a high of $277 under a bull scenario and $137 under the worst-case scenario. Evercore ISI raised its target price to $247 from $226; Piper Sandler raised the price target to $206 from $200 and Compass Point raised its target price to $230 from $200.

Several other equity researches have also recently upgraded their stock outlook. Wells Fargo raised the target price to $220 from $205, Citigroup raised the target price to $227 from $223, JP Morgan raised it to $203 from $182. Barclays raised it to $220 from $209 and RBC raised it to $247 from $212.

We think it is good to buy at the current level and target at least $210 in the short-term and $250 in a best-case scenario as 50-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

Analyst comment

“Visa is on of our preferred stocks, as it is a key beneficiary of resilient global consumer spend growth, the ongoing shift from cash to electronic payments, and broadening merchant acceptance. Global Personal Consumption Expenditure and secular growth drivers should support high-single digit volume growth and low double-digit revenue growth in the near-to-medium term,” noted James Faucette, equity analyst at Morgan Stanley.

“The threat of disruption from new entrants is fairly low given Visa’s competitive cost structure and moat. Continued investment in longer-term initiatives (faster payments, P2P, B2B) and partnerships continue to increase its TAM and offer an opportunity for compounding double-digit earnings growth for the foreseeable future,” he added.

American Express Could Sell Off To March Low

Dow component American Express Co. (AXP) reported mixed Q2 2020 results last week, with $0.29 per-share (EPS) beating profit estimates, while revenue of $7.67 billion fell well short of $8.25 billion expectations. Revenue contracted a staggering 29.2% year-over-year, undermined by the ongoing impact of the COVID-19 pandemic. The release triggered a modest sell-the-news reaction, dropping the stock 1.4% to a 2-week low.

American Express Heavily Exposed To Business Travel

The travel services giant has been pummeled by the pandemic, losing significant income since corporations worldwide stopped business travel in the first quarter and sent employees home to work through virtual meeting spaces. Many industry experts now believe that many of Amex’s blue chip customers will remain sidelined well after the infection runs its course, addicted to the lower costs of conducting business digitally, rather than in person.

Executives summed up the tough quarter, noting “while our second quarter results reflect the challenges of the current environment, we remain confident that our strategy for navigating this period of uncertainty is the right one. Our customers continue to be engaged with our products and services; we have a productive and dedicated workforce; our capital and liquidity levels remain strong; and we continue to focus on those areas most critical to our long-term growth.”

Wall Street And Technical Outlook

Wall Street consensus has grown increasing cautious on American Express in the last two months, unlike Mastercard Inc. (MA) and Visa Inc. (V), who have continued to book significant income through high volumes of digital transactions. It’s currently rated as a ‘Hold’, based upon 6 ‘Buy’ and 9 ‘Hold’ recommendations. Three analysts are now telling shareholders it makes sense to sell positions and move to the sidelines. Price targets range from a low of $85 to a street high $119 while the stock is trading about $6 below the median $101 target.

Technically-speaking, there’s little to love about American Express, which looks like a better short sale opportunity than long-term investment through the second half of 2020. It posted an all-time high in January, fell more than 50% into March, and reversed at the 200-day moving average in June, settling in the lower half of the 6-month range. Ominously, accumulation readings have dropped to depressed March levels, predicting that price may soon follow.