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Thursday, August 11, 2022

Weekly Market Review: Sharp Recovery from Early Setback

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The broader U.S. stock market averages rebounded from a large drop last Monday, to end the week 2% higher. Communication Services and Consumer Discretionary stocks led the recovery.

Concerns about a new uptick in COVID-19 cases (up 47% in the U.S. last week) and peaking economic growth are being met with a robust corporate earnings season.

On Friday, IHS Markit said that preliminary July U.S. PMI data fell in both the Manufacturing and Services sectors. The decline was particularly sharp on the Services side. This will be an important trend to keep an eye on as we learn more about what a post-pandemic economic recovery looks like.

The Week Ahead

The second-quarter earnings season is in full force this week. 177 companies in the S&P 500 are scheduled to announce results. The following names highlight the calendar:

July 26: Tesla (TSLA)

July 27: 3M (MMM), Alphabet (GOOG), Apple (AAPL), Microsoft (MSFT), Starbucks (SBUX) and United Parcel (UPS)

July 28: Boeing (BA), Facebook (FB), McDonald’s (MCD), Pfizer (PFE), and Qualcomm (QCOM)

July 29: Amazon (AMZN) and Merck (MRK)

July 30: Caterpillar (CAT) and Exxon Mobil (XOM)

According to Refnitiv, aggregate profit for the S&P 500 is expected to increase 78% from a year ago, leveraged from 20% sales growth.

In economic action, we’ll get durable goods orders and retail sales on Tuesday. This will be followed by the next FOMC interest rate decision on Wednesday. Thursday offers the first look at second-quarter U.S. GDP (expectations are for 8%-plus growth), followed by the core PCE deflator 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 Energy name is worth a closer look and is our Stock of the Week.

Stock of the Week: Ovintiv (OVV)

The company is an energy producer with core assets in the Permian Basin. Just 28% of its production in 2020 was crude oil, with the majority coming from natural gas and natural gas liquids (NGLs).

The stock gained nearly 5% last week and we believe this outperformance can continue into the second half of 2021. Here’s why:

Ovintiv was upgraded at Credit Suisse on Monday from Neutral to Outperform. Analyst William Janela set a price target of $38 (reflecting 38.9% upside potential), citing:

“as execution on asset sales and support from higher commodity prices position OVV to hit its debt reduction targets by 4Q21, clearing the way for it to meaningfully accelerate cash returns to shareholders and providing optionality for growth into 2022.”

Janela is rated in the top-6% of the nearly 7,600 analysts tracked by TipRanks, which adds weight to the call.

Ovintiv also has solid operating momentum. This dates back to when management posted quarterly results that exceeded the consensus analyst profit estimate. The company earned $1.16 a share in the first quarter and generated $540 million of free cash flow, which it used to reduce total debt by 7%.

The stock is attractively valued at just 5.5x expected 2021 earnings of $4.97 a share. This is a discount to both the broader market and median industry valuation of 7.5x.

In addition, Ovintiv carries a Smart Score of 10/10 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 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.

The post Weekly Market Review: Sharp Recovery from Early Setback appeared first on TipRanks Financial Blog.

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