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Sunday, December 4, 2022

Weekly Market Review: Inflation and Earnings in Focus

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U.S. stocks fell fractionally, as the S&P 500 snapped a three-week winning streak. Energy names led the way lower, while the Utilities sector rallied last week.

In economic action, all eyes were on the June U.S. inflation data. On Tuesday, it was reported that the consumer price index (CPI) grew by 5.4% last month, or 4.5% excluding food and energy. The following day, the producer price index (PPI) showed 7.3% growth for June, or 5.6% excluding food and energy.

Despite the higher inflation outlook, Chair Jerome Powell reiterated on Capitol Hill last week that the Federal Reserve has no intention of altering its accommodative interest rate policies. As a result, the yield on the benchmark 10-year U.S. Treasury note moved down around 1.3%

Later in the week, Friday’s consumer data were a mixed bag. June retail sales posted a surprise gain, while the preliminary reading of the Univ. of Michigan consumer sentiment index fell to the lowest level since last June.

The Week Ahead

The second-quarter earnings season gains momentum this week, with 81 companies in the S&P 500 scheduled to announce results. The following names highlight the calendar:

July 20: Netflix (NFLX)

July 21: Coca-Cola (KO), Johnson & Johnson (JNJ) Texas Instruments (TXN), and Verizon (VZ)

July 22: AT&T (T)

July 23: American Express (AXP)

According to Refnitiv, aggregate profit for the S&P 500 is expected to increase 72% from a year ago, leveraged from 19% sales growth.

On the economic front, we’ll get multiple readings about the state of the housing market this week. In addition, the preliminary July PMI data will be released on Friday.

Following the snap-back recovery in stocks last year from Pandemic lows, we believe that investment gains will be harder to come by in 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 Consumer name is worth a closer look and is our Stock of the Week.

Stock of the Week: Spectrum Brands (SPB)

The company has a portfolio of products for consumers to use around the home and their pets.

The stock gained 3% last week and we believe this outperformance can continue into the second half of 2021. Here’s why:

On Wednesday Bloomberg reported that Spectrum is exploring strategic options, including the potential sale of some of its business lines.

Retail spending has been robust in recent months, bolstered by multiple rounds of direct stimulus payments. The company has benefited from this, as evidenced by its recent quarterly report that surpassed expectations.

Back in May, management posted March quarter earnings of $1.76 a share, as revenue increased 23% from a year ago, to $1.15 billion. Spectrum has so far been able to pass along rising input costs to customers and part of the upside in the period was driven by the benefit of a weaker U.S. dollar.

In the meantime, the company consistently buys back stock and returns cash to shareholders through a 2% dividend yield.

Spectrum Brands is attractively valued at just 13.6x expected full-year earnings of $6.24. This represents a discount to both the broader market and average industry valuation of 18x.

Wall Street is one group that sees value in the company. The average price target of the six active analysts tracked by TipRanks is $108.83, reflecting 28.3% upside potential.

In addition, Spectrum carries a Smart Score of 9/10 on TipRanks. This proprietary score utilizes 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 seen insider buying, in addition to improving sentiment from investors (both professionals and individuals) and financial bloggers.

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.

The post Weekly Market Review: Inflation and Earnings in Focus appeared first on TipRanks Financial Blog.

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