It was a mixed week for U.S. stocks. Earnings season wrapped up and the markets received the latest inflation data.
The S&P 500 and Dow Jones Industrial Average went out at record highs on Friday. Meanwhile, the Nasdaq Composite ticked lower. Materials names led the way higher last week and the Energy sector lagged.
Preliminary August data from Michigan University showed that near-term inflationary expectations are rising. Yet, the headline of this survey was that the Consumer Sentiment index fell to its lowest level in nearly a decade.
On a positive note, earnings season is wrapping up. Over 450 companies from the S&P 500 have already posted results. More than 86% of those firms have surpassed the consensus analyst profit estimate. Refnitiv expects aggregate profit for the S&P 500 to increase 94% from a year ago, leveraged from 24% sales growth.
The Week Ahead
This week, the Retail sector dominates the earnings calendar. It begins with Home Depot (HD) and Wal-Mart (WMT) on Tuesday. Target (TGT) reports later in the week, as do notable non-retailers Cisco Systems (CSCO) and Deere (DE).
On the economic front, we’ll get the July retail sales data on Tuesday. Followed by the latest FOMC minutes Wednesday.
Following the snap-back recovery in stocks last year from Pandemic lows, investment gains may be harder to come by in the rest of 2021. As a result, deciding what and when to buy can be challenging for any investor. However, the fact remains that attractive investments are out there if you’re willing to dig a little deeper.
One such Industrial name is worth a closer look and is our Stock of the Week.
Stock of the Week: Caterpillar (CAT)
The company builds construction and mining equipment. It stands to benefit from the proposed push to boost infrastructure spending in the U.S.
The stock gained nearly 5% last week. We believe this outperformance can continue in the second half of 2021. Here’s why:
The U.S. Senate passed a $1 trillion infrastructure bill on Tuesday. This will likely invigorate future activity for many of Caterpillar’s customers.
Management produced quarterly results in July that surpassed the consensus analyst estimates. The company earned $2.60 a share in the second quarter, as revenue grew 29% from the previous year to $12.9 billion.
Higher end-market demand in all regions drove upside. About 60% of sales are generated from overseas, making it a beneficiary of a weaker U.S. dollar.
Caterpillar also boosted the quarterly dividend in June, to $1.11 a share (2% yield). Investors at the close of trading on July 16 qualified for the next payment on Aug. 20.
The company has increased its payout in 27 consecutive years. It can cover the new dividend 1.9x with expected full-year earnings of $8.32 a share. Caterpillar’s bonds are also A-rated by the major agencies.
The company carries a Smart Score of 10/10 on TipRanks. This unique score uses Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.
On top of the positive aspects mentioned already, the Smart Score indicates that shares have an improving sentiment from analysts, financial bloggers, and individual investors.
FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.
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