W.In evaluating recent moves and tumultuous fluctuations in the equity markets, there still appears to be an ongoing back-and-forth between price and value. The consecutive selling days that followed earlier in the week, fueled by concerns about Federal Reserve policies in the face of mounting inflationary pressures, gave way to seemingly positive economic news. Will this trend continue?
Though the previous session ended mixed up, stocks fell slightly on Friday and rebounded from previous declines with the Dow Jones Industrial Average recovering from a three-session losing streak and rising 225.96 points, or 0.65%, and Closed at 35,120.08. The S&P 500 index finished 35.87 points up, or 0.81%, to close at 4,441.67 while the tech-heavy Nasdaq Composite rose 1.19% to add 172.88 points to end the session at 14,714.66. Even with the upturn on Friday, all three benchmarks ended in losses for the week.
Over the five-day period, the S&P 500 was down 0.6% while the Nasdaq was down 0.8%. The Dow was the biggest loser, down 1.1% for the week. In particular, the averages suffered despite strong earnings reports from well-known S&P 500 companies across all sectors. Investors have turned their attention to the imminent curb on Federal Reserve bond purchases and the spreading of the effects of the coronavirus delta variant on the economy, among other things. For the past seven days, the daily average of new cases in the US rose to 143,827 through Thursday, a 44% increase in two weeks.
Furthermore, it didn’t help that China appeared to have unleashed war on its own tech companies for fear that they would become too powerful. Hence, many Chinese stocks like Alibaba (BABA), Baidu (BEGINNING) among other things, sold out hastily. The former is down 50% from its 52-week high.
On the plus side, there have been many opportunities for the markets to plunge down, such as a 5% correction, but that didn’t happen. “Buying the dip” was the first choice for investors who have been waiting for better entry points. This was also in the game on Friday.
The fear of rising inflation will not go away – not immediately. And last week’s reading of the Fed’s minutes, which indicated (for some) that an unwinding of accommodative asset purchases is imminent, fueled the flames of concern about how long the Fed can cut rates. At the same time, those concerns should be partially offset by the better-than-expected results in weekly initial jobless claims, which show that the number of new claims has fallen to its lowest level since the pandemic began.
The unemployment entitlement data, somewhat overlooked due to inflation fears, supports optimism that the market will offer a lot of upside potential in the next two quarters as society returns to normal. With that in mind, it seems like cyclical stocks like energy, finance, and materials – the sectors that could benefit from the reopening of the economy – have finally started rising, fueled by their better-than-expected earnings results. These are the names we’ve been talking about since the start of the reporting season.
Not only have these sectors beat top and earnings estimates by analysts, but in many cases their prospects for the 2nd opening are too. And here the patience and discipline of investors for high-quality stocks – despite the back and forth between price and value – must run at full speed. Here are the ones I’m going to check out this week.
Palo Alto Networks (PANW) – Reports after close of trading on Monday 23 August
Wall Street expects Palo Alto Networks to make $ 1.43 per share on revenue of $ 1.17 billion. Compared to the same quarter last year, earnings per share were $ 1.48 on sales of $ 950.4 million.
What to Keep in Mind: Software stocks have rocketed again in the past few weeks. The biggest winners include cybersecurity specialists like Palo Alto Networks, which has become popular amid the recent surge in cyber attacks. Without question, cybersecurity will be one of the hottest sectors in the tech industry for the next several years as companies strive not only to combat the increasing hacking ability, but also to take countermeasures necessary to support their digital expansion. Not to mention avoiding public embarrassment related to violations and ransom demands. The cybersecurity market is currently valued at $ 200 billion and is expected to grow to an average annual growth rate of about 10% over the decade. Palo Alto, which arguably offers the best products and services when compared to its competitors, will benefit from this growth. The question on Monday, however, will be whether the company can get investors (and analysts) excited about its stock compared to its peers.
Foreclosure (CRM) – Reports after close of trading Wednesday, August 24
Wall Street expects Salesforce to make 92 cents per share on sales of $ 6.24 billion. That compares with last year quarterly earnings of $ 1.44 per share on revenue of $ 5.15 billion.
What to Watch Out for: Salesforce stocks were one of the most popular components of the Dow, recently climbing to their highest level since hitting $ 260.84 per share on Nov. 24, 2020. And according to JMP Securities analyst Patrick. there is even more leeway for Walraven, who rates the stock as outperforming. Citing the company’s continued market share gains and its ability to capitalize on the digital adoption of its corporate customers, Walravens raised its target price on the stock from $ 282 to $ 320 per share last week. The company’s SaaS business model and customer relationship management services have been key to growing Salesforce over the past five years. Its many growth catalysts not only include Salesforce’s billing and booking metrics, which should reflect improving demand trends, but the company is poised to see higher profit margins in the quarters to come. On Wednesday, Salesforce has to convince the market how it should be implemented in the direction suggested by the analyst.
Splunk (SPLK) – Reports after close of trading Wednesday, August 24
Wall Street expects Splunk to lose 69 cents per share on sales of $ 562.82 million. Compared to the same quarter last year, the loss was 33 cents per share on sales of 491.66 million US dollars.
What to See: The machine data analytics company’s stock price is down nearly 20% over the past six months, while the S&P 500 is up 13% over that time. And if you’ve bought and only held the stock in the past nine months and a year, your stocks are down 21% and 30% respectively, and are lagging the S&P 500 index in every time frame. While the company understands customer behavior and can evaluate end-to-end online business transactions and generate strong sales growth, investors have shifted their focus to company valuation. With that in mind, the share price – which is now trading at only 10 times sales – seems more reasonable, given that sales growth estimates for fiscal 2022 are 22%. With the company backing up a quarter of 16% year-over-year revenue growth, the management team will have to convince a skeptical market on Wednesday that Splunk can further accelerate its growth rate and gain market share.
Peloton (PTON) – Reports after close of trading, Thursday, August 25th
Wall Street expects Peloton to lose 44 cents per share on sales of $ 921.66 million. Compared to the same quarter last year, the company lost 27 cents per share on sales of $ 607.1 million.
What to Note: Peloton shares have come under heavy selling pressure, plummeting as much as 52% from an all-time high of $ 171 in December to $ 82 per share in May. Meanwhile, stocks are down roughly 25% over the past six months, while the S&P 500 is up 13% over that period. While the market still believes in Peloton’s long-term position to revolutionize the fitness industry through its connected home subscription platform, the company faces some short-term headwinds. Aside from supply chain constraints, there were safety concerns that sparked an investigation by the Consumer Product Safety Commission (CPSC). The company recently announced It has issued a repair that ensures the machine’s touchscreen console remains securely connected to the Tread at all times, which has been approved by the CPSC. Now could be a good time to take a position in the stock as demand for its fitness products and interest in subscriptions is still growing. But the company had a lot to prove on Thursday.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
