U.S. stocks rallied to record highs on Friday and the S&P 500 ended the week about 1.5% higher. Energy names led the gains, while the Utilities sector lagged. Small-cap stocks surged last week, as the Russell 2000 jumped 5%.
Chair Jerome Powell offered few surprises with his speech at the Federal Reserve’s annual Jackson Hole conference on Friday. Powell suggested that a tapering of $120 billion of annual asset purchases would likely materialize by the end of 2021. However, all of the Fed’s actions remain dependent on the latest economic data.
To that end, the preliminary U.S. purchasing managers’ index (PMI) figures that IHS Markit reported on Monday showed larger-than-expected declines for August.
On the inflation front, the core PCE index showed 3.6% annual growth in July. This marked the highest increase in more than 30 years.
Elsewhere last week, core durable goods orders, personal income, and both existing and new home sales beat July estimates.
The Week Ahead
Broadcom (BRCM) headlines a relatively quiet earnings slate next week, as the calendar turns to September. Trading activity could tail off toward the end of the week, markets are closed on September 6 for Labor Day.
In economic news, we’ll receive August consumer confidence on Tuesday. This is followed by the Institute for Supply Management’s (ISM) manufacturing index Wednesday.
ISM will also report its services index on Friday, but all eyes will be on the August U.S. jobs data. The economy is expected to have added 728,000 non-farm payrolls for the month, with the headline unemployment rate returning to 5.2%.
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 Technology name is worth a closer look and is our Stock of the Week.
Stock of the Week: Semtech (SMTC)
The company makes semiconductors for a wide variety of electronic products. Customers have become particularly excited about the company’s “LoRa” product, which is used as part of the Internet of Things ecosystem.
The stock gained 11% last week and we believe this outperformance can continue in the final months of 2021. Here’s why:
Semtech has strong operating momentum and delivered quarterly results in June that surpassed expectations. The company earned $0.53 a share in the April quarter, as revenue increased 28% from a year ago, to $170.4 million of revenue.
Upside in the period was driven by record demand for Wireless and Sensing products, such as LoRa. In addition, management boosted guidance for both sales and profit in the July quarter. Consensus analyst estimates call for 24.3% average annual earnings growth over the next three years.
Wall Street sees value in the shares at current levels. The average price target of nine active analysts tracked by TipRanks is $85.50, which reflects 21.5% upside potential.
Semtech also has more cash than debt on the balance sheet. It used its free cash flow to buy back $25 million worth of shares in the most recent quarter.
In addition, the stock 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 improving sentiment from hedge funds, 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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