Tag: Finance

Yesterday’s retail sales report showed that consumers pulled back on spending last month, raising fears of a recession. Moreover, the Fed signaled to keep raising rates more through the following year. Given an uncertain market backdrop, investors should buy fundamentally sound and dividend-paying stocks Johnson (JNJ), Coca-Cola (KO), and Cardinal Health (CAH), which could keep gaining and generate significant long-term returns. Read on….

With inflation cooling considerably in the last two months, the Federal Reserve slightly eased its monetary policy tightening by raising its benchmark interest rate by 50 basis points this week.

“Inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases. But it will take substantially more evidence to have confidence that inflation is on a sustained downward path,” said the Fed Chair, Jerome Powell.

The Fed officials indicated plans to keep raising rates through next year, with no reductions until 2024, and expect the “terminal rate” at 5.1%. Furthermore, the weaker-than-expected retail sales data suggests that inflation is taking a toll on consumers. Retail sales dropped 0.6% in November, worse than the Dow Jones estimate of a 0.3% decline.

The disappointing retail sales report and the Fed’s indication of extending rate hikes sparked recessionary fears. Wall Street tumbled yesterday, with the Dow Jones closing out its worst day in three months. The Dow Jones declined 2.3%, while the S&P 500 and Nasdaq Composite fell 2.5% and 4.5%, respectively.

Amid the ongoing market uncertainties, investing in fundamentally strong and dividend-paying stocks Johnson & Johnson (JNJ), The Coca-Cola Company (KO), and Cardinal Health, Inc. (CAH) could be wise for investors looking to generate massive long-term returns.

Johnson & Johnson (JNJ)

JNJ, the world’s largest and most diverse healthcare conglomerate, develops, manufactures, and sells various healthcare goods. Its business operates through three segments, Consumer Health Products; Pharmaceutical Products; and MedTech. Its core focus is items relating to human health and well-being.

On November 1, JNJ and Abiomed Inc. (ABMD), a world leader in breakthrough heart, lung, and kidney support technologies, announced that they have entered into a definitive agreement under which JNJ will acquire through a tender offer all outstanding shares of Abiomed, for an upfront payment of $380.00 per share in cash.

ABMD’s skilled workforce, strong ties with clinicians, unique cardiovascular portfolio, and extensive pipeline will complement JNJ’s MedTech portfolio. It will also enable JNJ to implement its strategic priorities, and vision for the new JNJ focused on Pharmaceutical and MedTech.

For the fiscal 2022 third quarter ended September 30, 2022, JNJ’s sales in the United States grew 4.1% year-over-year to $12.45 billion, while its overall reported sales increased 1.9% year-over-year to $23.79 billion, with adjusted operational growth of 8.2%. Its net earnings rose 21.6% year-over-year to $4.46 billion, while its EPS increased 22.6% from the year-ago value to $1.68.

JNJ paid a quarterly dividend of $1.13 per share on December 6, 2022. It pays a $4.52 per share dividend annually, which translates to a 2.51% yield on the current price. Its four-year average dividend yield is 2.60%. JNJ’s dividend payout has grown at a 5.9% CAGR over the past three years and a 6% CAGR over the past five years. The company has raised its dividend for 60 consecutive years.

For the fiscal year ending December 2022, analysts expect JNJ’s revenue to increase 1.4% year-over-year to $95.04 billion. The company’s EPS for the current year is expected to increase by 2.5% year-over-year to $10.05. JNJ has surpassed the consensus EPS estimates in each of the four trailing quarters, which is impressive.

In addition, analysts expect the company’s revenue and EPS for the next fiscal year to grow 2.6% and 3.2% year-over-year to $97.54 billion and $10.37, respectively. Over the past month, JNJ has gained 3% and 4.4% over the past six months to close the last trading session at $177.49.

JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has an A grade for Stability and a B for Value and Quality. Within the Medical-Pharmaceuticals industry, it is ranked #7 of 160 stocks.

Beyond what we stated above, we also have JNJ’s ratings for Growth, Sentiment, and Momentum. Get all JNJ ratings here.

The Coca-Cola Company (KO)

KO is a famous beverage company that manufactures, markets, and sells various nonalcoholic beverages worldwide. The company offers sparkling soft drinks, flavored and enhanced water, sports drinks, juice, dairy, plant-based beverages, and energy drinks. It operates through a network of independent bottling partners, distributors, wholesalers, and retailers.

On September 29, KO and Molson Coors Beverage Company (TAP) entered an exclusive agreement to develop and commercialize Topo Chico Spirited, a line of spirit-based, ready-to-drink cocktails inspired by the bright and refreshing taste of tequila and vodka-based beverages. It will be launched in more than 20 markets across the country in 2023 and might boost the company’s revenue stream.

For the fiscal 2022 third quarter ended September 30, 2022, KO’s net operating revenues increased 10.2% year-over-year to $11.05 billion. The company’s gross profit grew 7.1% year-over-year to $6.50 billion. Its operating income came in at $3.09 billion, up 6.6% year-over-year.

Furthermore, the net income attributable to shareholders of KO was $2.83 billion, up 14.3% year-over-year. Its non-GAAP net income per share grew 6.2% from the year-ago value to $0.69.

On December 15, KO paid its shareholders a regular quarterly dividend of $0.44 per common share. The company pays $1.76 per share annually, which translates to a 2.75% yield at the current price. Its four-year average dividend yield is 3.07%.

KO has a record of 60 years of consecutive dividend growth. The company’s dividend payouts have grown at a CAGR of 3.2% over the past three years and a CAGR of 3.5% over the past five years.

Analysts expect KO’s EPS to increase 7.4% year-over-year to $2.49 for the fiscal year ending December 2022. Likewise, the revenue estimate of $42.70 billion indicates a 10.5% growth from the previous year. Also, the company has surpassed the consensus EPS and revenue estimates in all four trailing quarters.

The stock has gained 3.2% over the past month and 8.7% over the past year to close its last trading session at $63.11.

KO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, equating to a Buy in our proprietary rating system.

KO has a grade of A for Sentiment and B for Stability and Quality. Within the A–rated Beverages industry, it is ranked #16 out of 33 stocks.

Beyond what we’ve stated above, we have also given KO grades for Value, Momentum, and Growth. Get all KO ratings here.

Cardinal Health, Inc. (CAH)

CAH provides various healthcare services and products in the United States, Canada, Europe, and Asia. The company operates through two segments: Pharmaceutical and Medical. It offers customized solutions for hospitals, healthcare systems, pharmacies, clinical laboratories, and at-home patients.

Last month, CAH launched Velocare™, a supply chain network and last-mile fulfillment solution that will reach patients in one to two hours with critical products and services required for hospital-level care at home. Through a collaboration with Medically Home, Cardinal Health at-Home Solutions supports Medically Home health system customers with Velocare™ to enable scaled, high-acuity care in the home.

On September 15, CAH and PayrHealth announced a collaboration to help specialty physician practices simplify payor contracting and maximize financial performance. “We are very excited to partner with PayrHealth to bring meaningful efficiencies and cost savings to practices, so they can focus on patient care,” said Amy Valley, vice president of Clinical Strategy & Technology Solutions at Cardinal Health.

In the fiscal 2023 first quarter ended September 30, 2022, CAH’s revenue increased 12.8% year-over-year to $48.60 billion. Its revenue from the Pharmaceutical segment rose 15.1% from the year-ago value to $46.83 billion, while its segment profit came in at $431 million, up 6.2% year-over-year. The company’s adjusted free cash flow for the quarter stood at $342 million.

On November 8, CAH’s Board of Directors approved a quarterly dividend of $0.4957 per share, payable on January 15, 2023. Its annual dividend of $1.98 yields 2.91%. Moreover, the company’s dividend payouts have grown at a 1% CAGR over the last three years and a 1.6% CAGR over the past five years. The company has a record of 27 years of consecutive dividend growth.

The consensus revenue estimate of $199.25 billion for the fiscal year ending June 2023 represents a 9.9% improvement year-over-year. The consensus EPS estimate of $5.29 for the ongoing year indicates a 4.6% year-over-year growth. Furthermore, the company’s revenue and EPS for the next fiscal year are expected to grow 6.3% and 18% year-over-year to $211.81 billion and $6.25, respectively.

Shares of CAH have gained 51.1% year-to-date and 59.7% over the past year to close the last trading session at $78.57.

CAH’s financial strength and solid growth prospects are reflected in its POWR Ratings. The stock’s overall A rating translates to a Strong Buy in our proprietary rating system.

CAH has a grade of B for Growth and Value. Within the Medical – Services industry, it is ranked #4 of 77 stocks. To see additional POWR Ratings (Sentiment, Quality, Momentum, and Stability) for CAH, click here.

JNJ shares were unchanged in premarket trading Friday. Year-to-date, JNJ has gained 6.48%, versus a -17.02% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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The post 3 Stocks to Buy That Could Make You a Millionaire in the Long Term appeared first on StockNews.com

A classic cup-with-handle base is often a precursor to a stock’s run-up, and retailer Tractor Supply Company (NASDAQ: TSCO) is forming exactly that type of consolidation. 

The Tennessee-based company specializes in items for rural lifestyles, including hardware, supplies for livestock and domestic animals, lawn and garden items, fencing, mowers, and clothing.  

It’s the nation’s largest consumer farm retailer. As of September, it operates 2,027 Tractor Supply stores in 49 states and an e-commerce platform. In October, it acquired 81 stores from Orscheln Farm and Home. These will be rebranded to Tractor Supply by the end of next year. 

Tractor Supply also owns Petsense by Tractor Supply, a small-box pet specialty supply chain primarily in small and mid-size communities. It runs 180 Petsense stores in 23 states. 

MarketBeat analyst data for the company show a “moderate-buy” rating with a price target of $235.94 and a potential upside of 10.88%. 

Analysts Expect More Store Openings

Morningstar analyst Jaime Katz writes that she expects Tractor Supply to grow to around 3,000 stores by 2031, including Petsense. Over time, the company seems poised for growth, but what about the more immediate future?

Shares are up 14.41% in the past three months as the stock began etching the right side of a cup pattern in September. It rallied to an interim high of $229.81 on December 1 and has been forming a handle since then. The cup-with-handle formation offers an early entry point before a stock regains the high price of the cup base. 

As the handle formed, the stock declined 1.63% in the past month. You don’t want to see a handle decline of more than 10% or possibly 15% at the outset; that would mean the setup has broken down. 

Another good sign in the current handle is: Trading volume has been below normal in the past two weeks as the price declined. That’s ideal, as a heavy-volume selloff could indicate a lack of conviction among institutional buyers. Instead, this handle appears (so far) to be the result of some mild profit-taking. That can serve to shake out investors who lack conviction, setting the stage for more interested buyers to nab shares at a lower price. 

But does the current setup suggest more significant potential for gains than even the analysts see? 

Shares were trading around $213.27 mid-session Thursday. That’s roughly 7% below a potential buy point near $230. If the stock clears that buy point without the handle sinking much further, then the stock may have the juice to rise more than 10.88%, primarily if a broad market rally also provides a lift. 

Sales, Earnings Continue To Increase

Do Tractor Supply’s fundamentals suggest the stock is ready to rally in the near-to-medium term?

The three-year revenue growth rate is 20%, and its three-year earnings growth rate is 29%. Revenue grew between 43% and 8% in the past eight quarters. One possible caveat: Revenue growth has been slowing from mid-double-digit rates to single-digit rates over the past six quarters. Make no mistake: Sales are still increasing at healthy year-over-year clips, but less frenetically than before. 

Earnings have been growing each year, as well. For the full year, Wall Street is eyeing a net income of $9.62 per share, an increase of 12%. Next year, that’s expected to grow another 9% to $10.47 per share. 

As with many stocks, Tractor Supply’s price action has tended to track the broader market. For example, shares advanced in five of the subsequent six sessions after the company’s most recent earnings report on October 20. However, as a nascent rally in the S&P 500 sputtered in early November, Tractor Supply also fell. Even its current handle formation is occurring in tandem with a moderate selloff in the S&P.

The cup-with-handle base, solid earnings and revenue growth, and future projections make the stock an attractive watchlist candidate. Investors should resist the temptation to jump into a promising stock too early, as their money may languish while other stocks rally sooner. 

Despite the aggressive rate hikes that plagued tech stocks since the start of the year, the software industry’s prospects look strong, thanks to rapid digitalization and demand for cloud-based solutions. While fundamentally strong software stocks Salesforce (CRM) and Mitek Systems (MITK) could be worth buying to capitalize on the industry’s long-term growth prospects, it would be wise to steer clear of fundamentally weak stocks Robinhood Markets (HOOD) and Fastly (FSLY). Keep reading….

2022 has been a challenging year for tech stocks due to various macroeconomic concerns. The Fed’s aggressive rate hikes have made the high-growth tech stocks look unattractive to investors, leading to the tech-heavy Nasdaq Composite shedding 28.6% year-to-date.

However, inflation is now showing signs of cooling down, with November’s CPI rising 0.1% from the previous month and 7.1% from a year ago, below analyst estimates. The easing of inflation has prompted the Fed to stick to the word of slowing down the pace of rate hikes, as it announced a 50-basis-point rate increase yesterday.

With the Fed starting to slow down the pace of rate increases, software stocks could again turn into attractive investment options for investors. According to Gartner, enterprise software spending is projected to grow 8.6% in 2023.

Although the industry’s prospects look bright, not all software stocks will likely turn out to be profitable investments. In order to capitalize on the industry’s recovery prospects, it could be wise to buy fundamentally strong software stocks Salesforce, Inc. (CRM) and Mitek Systems, Inc. (MITK). On the other hand, Robinhood Markets, Inc. (HOOD) and Fastly, Inc. (FSLY) could be best avoided now due to their weak fundamentals and poor growth prospects.

Stocks to Buy:

Salesforce, Inc. (CRM)

CRM provides customer relationship management technology that brings companies and customers together worldwide. Its Customer 360 platform empowers its customers to work together to deliver connected experiences for their customers. The company’s service offerings include Sales, Service, Marketing, and Commerce.

On September 21, 2022, Insurtech leader, Zywave, announced a dedicated partnership and increased collaboration with CRM. This partnership is believed to bring together the worlds of insurance agency sales and client service, creating more efficient, strategic workflows powered by data and content to deliver a seamless client experience.

Raja Singh, Senior VP and General Manager at CRM, said, “Together, Salesforce and Zywave enable users to efficiently do their jobs and unlock their critical business data, so it can be leveraged for real-time intelligence going forward.”

For the fiscal third quarter ended October 31, 2022, CRM’s total revenues increased 14.2% year-over-year to $7.84 billion. The company’s gross profit increased 14.5% year-over-year to $5.75 billion. Moreover, its income from operations increased significantly year-over-year to $460 million.

Analysts expect CRM’s EPS and revenue for the quarter ending December 31, 2022, to increase 61.6% and 9.2% year-over-year to $1.36 and $8 billion, respectively. CRM has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has fallen 15.1% over the past month to close the last trading session at $134.75.

CRM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Within the Software – Application industry, it is ranked #15 out of 139 stocks. It has an A grade for Growth and a B for Sentiment.

We have also given CRM grades for Value, Momentum, Stability, and Quality.Get all CRM ratings here.

Mitek Systems, Inc. (MITK)

MITK develops, markets, and sells mobile image capture and digital identity verification solutions worldwide. The company’s solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences. It offers products such as Mobile Deposit, Mobile Verify, Mobile Fill, CheckReader, among others.

For the fiscal third quarter ended June 30, 2022, MITK’s total revenue increased 23.8% year-over-year to $39.33 million. Its non-GAAP net income came in at $10.18 million. The company’s non-GAAP EPS came in at $0.23, representing no change from the year-ago period.

Analysts expect MITK’s revenue for the quarter ended September 30, 2022, to increase 16.1% year-over-year to $38.61 million. For fiscal 2022, its EPS is expected to increase 17.1% year-over-year to $0.89.

It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 24.7% over the past six months to close the last trading session at $10.90.

It is no surprise that MITK has an overall rating of B, translating to a Buy in our proprietary rating system. Within the Software – Application industry, it is ranked #8. In addition, it has a B grade for Growth, Value, and Quality.

Click here to see the additional ratings of MITK for Momentum, Stability, and Sentiment.

Stocks to Avoid:

Robinhood Markets, Inc. (HOOD)

HOOD operates a financial services platform that allows users to invest in stocks, exchange-traded funds, options, gold, and cryptocurrencies. The company also offers various learning and education solutions comprising Snacks, Learn, Newsfeed, and cash management services.

HOOD’s total net revenues for the fiscal third quarter ended September 30, 2022, declined 1.1% year-over-year to $361 million. Its net loss narrowed 87% year-over-year to $175 million. Additionally, its loss per share narrowed 90.3% year-over-year to $0.20.

HOOD’s EPS for the quarter ending December 31, 2022, is expected to remain negative. Its revenue for fiscal 2022 is expected to decline 24.6% year-over-year to $1.37 billion. The stock has fallen 48.8% year-to-date to close the last trading session at $9.09.

HOOD’s grim outlook is reflected in its POWR Ratings. The company has an overall rating of D, which translates to a Sell in our proprietary rating system. Within the same industry, it is ranked #120. The company has an F grade for Stability and a D for Value and Quality.

Click here to see the additional POWR Ratings of HOOD for Growth, Momentum, and Sentiment.

Fastly, Inc. (FSLY)

FSLY operates an edge cloud platform for processing, serving, and securing its customer’s applications worldwide. The edge cloud is a category of Infrastructure as a Service that enables developers to build, secure, and deliver digital experiences at the edge of the internet. It is a programmable platform designed for web and application delivery.

For the fiscal third quarter ended September 30, 2022, FSLY’s non-GAAP gross margin came in at 53.6%, compared to 57.5% in the year-ago period. The company’s non-GAAP operating loss widened 53.4% year-over-year to $19.84 million. Additionally, its non-GAAP net loss per common share widened 27.3% from the prior-year quarter to $0.14.

FSLY’s EPS for the quarter ending December 31, 2022, is expected to remain negative. The stock has fallen 73.2% year-to-date to close the last trading session at $9.50.

FSLY’s bleak prospects are reflected in its POWR Ratings. The company has an overall rating of D, translating to a Sell in our proprietary rating system. It is ranked #130 in the Software – Application industry. In addition, it has a D grade for Momentum, Stability, and Sentiment.

To see the additional ratings of FSLY for Growth, Value, and Quality, click here.

CRM shares were trading at $130.55 per share on Thursday afternoon, down $4.20 (-3.12%). Year-to-date, CRM has declined -48.63%, versus a -16.86% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika’s passion for writing and interest in financial markets led her to pursue a career in investment research.

With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.

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The post 2 Software Stocks to Buy This Week and 2 to Avoid appeared first on StockNews.com

Enterprise Products Partners (NYSE: EPD) has recently been on a wild ride. It has gone thru some stunning peaks and troughs and ended up 7.82% year to date. As a result, investors might wonder if its current stock price represents a good entry for buying shares.

So let’s examine the bull and bear case for investing in EPD to see if we can piece together its valuation.

The Bull Case

Wall Street’s opinion on a given stock is a good starting point when investigating if it’s potentially undervalued. According to the MarketBeat consensus price target of $30.50, EPD has a 24.95% potential upside. In addition, eleven analysts rated the stock and came to the consensus that it was a moderate buy.

Other aspects of EPD’s fundamentals are also substantial, including the fact that some of its insiders have been buying shares and its low short-interest ratio. Insiders bought $248,000 worth of shares last quarter, and it has a short-interest ratio of 1.63%.

Then there’s EPD’s macro backdrop, which has improved substantially since the war in Ukraine began and crucially due to Russia’s termination of its Nord Stream 1 output to Europe. In July, the International Monetary Fund (IMF) wrote that Russia’s stoppage of natural gas to this region means that Europe’s economic output could fall by as much as 6 percent.

This means that alternative hydrocarbon suppliers such as EPD are poised to see an increase in demand in the region to help make up for the shortfall. And as geopolitical tensions between Russia, China, and NATO countries continue to escalate, western-aligned energy companies are likely to benefit from favoritism as a strong tailwind.

The Bear Case

Some weaknesses in EPD’s fundamentals and backdrop should be explored.

The first is its dividend, often cited as one of its main draw cards for buying the stock. EPD has increased its dividend for 24 consecutive years and is on track to become a dividend aristocrat.

However, the problem lies in its dividend coverage ratio, which currently stands at 81.90%. This means the company is paying out a considerable sum and proportion of its net income in dividends to shareholders, which is likely unsustainable under normal business conditions.

EPD may reduce its dividend within the next few years, thus ending its dividend growth streak. However, a plausible thesis is that the company will redirect some of its earnings on dividends into scaling its capital expenditure, which could lead to greater returns to shareholders later. This would mean EPD could further tap into a couple of opportunities, including the gas shortage in Europe.

Another catalyst is the world’s energy transition to renewables, which will be facilitated first through a rise in demand for hydrocarbon products. These are solid reasons for EPD to consider diverting its spending to infrastructure due to a quickly rising total addressable market for its output.

The final reason is that natural gas does not fit into the renewable energy paradigm and will eventually be replaced by cleaner and more efficient energy sources, such as green hydrogen and nuclear fusion. This means that while natural gas stocks like EPD may rise over the next decade, they provide only a transitory solution to reducing carbon emissions. Their preference may quickly wear off as better energy technologies are developed further.

The question then is one potential upside over the long-term and opportunity cost. In other words, are investors better off paying a premium for natural gas stocks to possibly receive a faster return, or do they invest where the energy market is ultimately heading at a lower price?

Uranium stocks, for instance, have lower valuation ratios on the whole than natural gas stocks, and hydrogen stocks can also be scooped up at a relative bargain. Investors waiting on these decades-long timeframes for hydrogen and uranium stocks to take off also take on more risk, which always is a factor to consider.

The Bottom Line

EPD has the momentum to continue its rally over the short term, and over the medium time frame, it will benefit from a couple of solid catalysts in its macro backdrop. However, investors should also consider their investment horizons and risk tolerance, as natural gas is not the intended solution for the world’s energy needs. There are less expensive stocks to buy that fit this solution which may have a more significant (as well as more speculative) upside potential than gas stocks like EPD.

Latin American e-commerce specialist MercadoLibre Inc. (NASDAQ: MELI) has only trended lower in 2022, and a new partnership could boost the stock.

Earlier this month, the chief financial officer of the Argentina-based company told Reuters that MercadoLibre would begin processing business payments for WhatsApp users. 

WhatsApp, owned by Meta Platforms Inc. (NASDAQ: META), offers free multiplatform messaging capabilities. Not well known in the U.S., but it’s popular worldwide among family members, friends, and business associates who live in different countries.  

While users have long had access to functionality, including making text messaging and voice and video calls, payment processing would be a new feature. 

MercadoLibre CFO Pedro Arnt told Reuters that the two companies are testing payment processing in Brazil. “This could be an opportunity for us to leverage WhatsApp efficiently to generate more sales and better customer contacts,” Arnt said.

“Seamless Checkout Experience” 

In a company blog post, WhatsApp addressed the Brazil initiative, saying, “Ultimately, we want people to be able to make a secure payment right from a chat with their credit or debit card. We recently launched this experience in India, and we’re excited to test this in Brazil with multiple payment partners. This seamless checkout experience will be a game-changer for people and businesses looking to buy and sell on WhatsApp without having to go to a website, open another app or pay in person.”

WhatsApp has been offering in-app payments in India since 2020. The Brazil test began in November. 

MercadoLibre went public in 2007. In its early years was viewed as the equivalent of eBay Inc. (NASDAQ: EBAY) or Amazon.com Inc. (NASDAQ: AMZN).

The company has expanded its operational capabilities in the years since and now includes a lending unit and in-house shipping operations. It also runs an advertising platform that provides classifieds, which allows users to list users to vehicles, vessels, aircraft, real estate, and services outside the Marketplace platform.

MercadoLibre reported having more than 88 million unique users in the most recent quarter, with operations in 18 countries. 

Strong Earnings And Revenue Growth

Despite this year’s poor stock price performance, sales and earnings growth have been vital in recent quarters. MarketBeat analyst data for MercadoLibre show a “moderate-buy” rating on the stock, with a price target of $1,317, representing a potential upside of 51.27%. A trend line connecting a series of recent price lows illustrates how that price may be reachable by mid-2023. 

Since the company’s most recent earnings report on November 3, Citigroup lowered its price target from $1,150 to $1,050. Nonetheless, that still reflects optimism about a potential upside of 23.34%. 

MercadoLibre’s three-year revenue growth rate is 74%. Sales increased between 45% and 111% in the past eight quarters. 

The bottom line has been more erratic, with losses in 2018, 2019, and 2020. Last year, the company returned to profitability, earning $1.67 per share. This year, analysts expect the company to earn $8.47 per share, an increase of 407%, and projected to rise another 63% next year to $13.78 per share. 

That figure has been revised higher recently, but not necessarily because analysts have weighed in on the potential of the WhatsApp partnership. 

Missed Earnings Views

Earnings data compiled by MarketBeat show MercadoLibre missing bottom-line views in the past three quarters. In addition, it missed top-line views in one of those quarters.

MercadoLibre’s chart shows a first-stage base that began in mid-August. It’s corrected 31% thus far, although it’s working on its fifth week in a row of declines. The stock is down 10.69% in the past month and 7.76% in the past three months. 

So far, the stock is holding above its previous low of $600.68 in mid-June. However, as of mid-session Wednesday, shares were trading below short- and longer-term moving averages. That means the stock still needs to stage a rally that could make it a less risky investment candidate. 

Generally, it’s better to focus on stocks beginning a rally rather than being mired in a correction.

U.S. mid-cap stocks are on pace to outperform their large-cap peers for the second straight year. The S&P 400 is down 13% year-to-date, a roughly 400 basis points edge over the S&P 500.

Mid-cap land has long been regarded as the ‘sweet spot’ for equity investors. Companies are fairly well-established in their respective markets but often have more room for growth than mature large caps. With mega caps out of favor in 2022, investors are discovering winners a bit further down the capitalization spectrum.

Another explanation for the return disparity is relative sector weightings. Technology dominates the S&P 500 with a 26% weight, double that of the S&P 400. The Industrial sector makes up the biggest portion of the mid-cap index at 19% but is just 8% of the large cap index. Tech is this year’s worst-performing group. Industrials have held up well and trail only the vastly outperforming Energy sector.

At the individual stock level, only one S&P 500 component has doubled year-to-date, that being Warren Buffet pick Occidental Petroleum. Ditto for the S&P 400 where oil & gas refiner PBF Energy quadrupled before a sharp pullback. 

Whether or not mid-caps outperform again in 2023 is anyone’s guess. What’s more certain is the classic risk-reward tradeoff — smaller-sized companies generally have greater return potential. Devoting more resources to mid-caps comes with increased risk but could help a portfolio recover faster.

Here are three mid-caps Wall Street sees as two-baggers over the next 12 months. 

What is the Outlook for Intellia Therapeutics? 

Intellia Therapeutics, Inc. (NASDAQ: NTLA) develops therapies based on the widely followed CRISPR-Cas9 genome editing technology. It has several in vivo and ex vivo programs for the treatment of lung disease, liver disease, cancer, and other indications. Intellia’s most promising candidate is NTLA-2001, which is being co-developed with Regeneron Pharmaceuticals as a therapeutic for ATTR amyloidosis. 

Absent any commercialized products, Intellia’s revenue is limited and its losses are steep — but Wall Street sees an inflection point ahead. The pipeline is progressing well and an investigational new drug (IND) application is expected to be filed next year to launch clinical studies on a lung disease candidate. The potential for marketed products is at least a few years away but clinical success could be a major catalyst. 

Analysts remain wildly bullish on Intellia as it slips to a new 52-week low. A $100 average price target equates to over 150% upside. 

Will Traders Lift Lyft in 2023?

Lyft, Inc. (NASDAQ: LYFT) continues to find support from the Street, and it makes sense. The ridesharing company has generated 30% higher revenue year-to-date and recovered from steep pandemic losses to book six straight profitable quarters. And yet the stock is down more than 70% this year. 

Despite the financial recovery, Lyft faces plenty of challenges. Ridership remains below pre-Covid levels and an impending economic downturn points to fewer nights out on the town and demand for a lift. The company laid off another 700 employees last month as it braces for a challenging 2023.

Still, the long-term outlook is positive and that’s why sell-side analysts see Lyft trading near an all-time low as an opportunity. Price targets are all over the map but the average of $22 would be a 100% return from here. 

The prevailing thesis is that current challenges will subside and lend way to an early-stage secular trend towards on-demand, cash-free transportation via car, scooter, or bike. Volatile gas prices and expensive repairs along with a craving for convenience are expected to shift consumers away from car ownership to transportation-as-a-service (TaaS). In turn, a lot of money could shift from car dealers to ride-hailing apps. It is a long road ahead for Lyft, but growth investors may want to come along for the ride.

Does Samsara Stock Have Good Upside?

Samsara Inc. (NYSE: IOT) is an Internet-of-Things (IoT) company that picked the wrong time to go public. It is the creator of the Connected Operations Cloud which helps businesses gain actionable insights and improve operations based on IoT data. The Street is mostly bullish on the $13 stock in thinking it can return to its December 2021 IPO levels in the mid-$20. 

Samsara is focused on video-based safety solutions for the transportation industry that detect things like driver cell phone usage and lack of seatbelt usage. Together with telematics and AI-powered video search, its subscription-based products generate strong recurring revenue. 

On account of its 2,828% three-year revenue growth, Deloitte recently named Samsara one of the fastest-growing technology companies in North America. It is coming off a beat and raise quarter that showed end market demand is sturdy despite the macro weakness. 

Not all enterprise SaaS companies are holding up this well, nor are they moving closer to profitability as Samsara is. Management is projecting 49% top-line growth this year and a narrower net loss. If this under-the-radar IoT play can deliver these kinds of results in a weakened economy, the future is surely bright.

Inflation eased again in November, which could allow the Fed to slow interest-rate hikes into the following year. Overall, the odds of the economy avoiding an anticipated recession are increasing. Given this backdrop, quality stocks CVS Health (CVS), ADT (ADT), ODP Corporation (ODP), and Universal Logistics (ULH) will likely see further upside next year. Read on….

This year, the stock market has seen significant volatility due to record-high inflation, the Russia-Ukraine war, and the Fed hiking interest rates at a pace not seen in decades. However, inflation cooled notably last month and is at its lowest since December 2021.

The Labor Department yesterday reported that the Consumer Price Index (CPI) increased 7.1% from a year ago in November, lower than economists’ expectations of 7.3%. The moderation in inflation made investors optimistic about the central bank’s future course of action on the policy front.

“Cooling inflation will boost the markets and take pressure off the Fed for raising rates, but most importantly this spells real relief starting for Americans whose finances have been punished by higher prices,” said Robert Frick, corporate economist with Navy Federal Credit Union.

A weaker-than-expected CPI report combined with favorable data on jobs and income is increasing hopes that the economy could avoid an anticipated recession next year or suffer a mild downturn. Moody’s Analytics chief economist Mark Zandi is confident that the U.S. economy will narrowly avoid a recession, citing the recent favorable economic and market indicators.

According to Gagnon of the Peterson Institute of International Economics, the chances of a soft landing are between 50% and 60%, including the possibility of a “very, very mild recession.”

Given the backdrop, we think it could be wise to invest in fundamentally sound stocks CVS Health Corporation (CVS), ADT Inc. (ADT), The ODP Corporation (ODP), and Universal Logistics Holdings, Inc. (ULH) that have more room to run next year.

CVS Health Corporation (CVS)

CVS provides health services in the United States. The company operates through three segments: Health Care Benefits; Pharmacy Services; and Retail/LTC. It operates more than 9,900 retail locations and 1,200 MinuteClinic locations, online retail pharmacy websites, LTC pharmacies, and onsite pharmacies.

On December 1, CVS opened its first MinuteClinic locations in northern Delaware. MinuteClinic, the medical clinics inside select CVS Pharmacy stores, offers high-quality, affordable, and convenient care for various acute and chronic conditions for patients ages 18 months and older.

On September 5, CVS entered a definitive agreement with Signify Health (SGFY) to acquire Signify Health.

CVS Health President and CEO Karen S. Lynch said, “This acquisition will enhance our connection to consumers in the home and enables providers to address patient needs better as we execute our vision to redefine the healthcare experience. In addition, this combination will strengthen our ability to expand and develop new product offerings in a multi-payor approach.”

For the fiscal 2022 third quarter ended September 30, 2022, CVS’ total revenues increased 10% year-over-year to $81.16 billion. Its adjusted operating income increased by 3.9% from the prior-year period to $4.23 billion. In addition, the company’s adjusted earnings per share came in at $2.09, up 6.1% year-over-year.

Over the past three years, CVS’ revenue and EBIT have grown at CAGRs of 8.9% and 7.2%, respectively. 

Analysts expect CVS’ revenue and EPS for the current fiscal year (ending December 2022) to increase 7.7% and 2.6% from the prior year to $314.49 billion and $8.62, respectively. The company’s revenue and EPS for the next year are expected to grow 3.4% and 2.7% year-over-year to $325.26 billion and $8.86, respectively.

Furthermore, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 2.7% and 11.3% over the past six months to close the last trading session at $101.19.

CVS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.

CVS has an A grade for Growth and a B for Stability and Sentiment. It is ranked first out of 4 stocks in the B-rated Medical – Drug Stores industry.

We have also given CVS grades for Value, Momentum, and Quality. Get all the CVS ratings here.

ADT Inc. (ADT)

ADT provides security, interactive, and innovative home solutions to serve residential, small business, and commercial customers in the United States. Its segments include Consumer and Small Business (CSB); Commercial; and ADT Solar business (Solar). The company operates through a network of nearly 250 sales and service offices and three regional distribution centers.

On September 6, ADT announced its partnership with State Farm. State Farm will make a $1.2 billion equity investment in ADT, resulting in State Farm owning approximately 15% of ADT. Additionally, ADT plans to partner with State Farm and build upon its existing relationship with Alphabet (GOOG) (GOOGL), with the latter agreeing to commit an additional $150 million to support this opportunity.

In August, ADT announced its partnership with Uber Technologies, Inc. (UBER) to integrate ADT mobile safety solutions into the Uber app for riders and drivers in the United States to get live help, via phone or text, from ADT professional monitoring agents. This marks yet another addition to ADT’s growing Clientele that utilizes Safe by ADT to power their app-based mobile safety features.

For the third quarter of the fiscal year 2022 ended September 30, ADT’s total revenue increased 21.8% year-over-year to $1.60 billion, while the company’s adjusted EBITDA grew 11.9% year-over-year to $620 million. The company reported an adjusted net income of $83 million or $0.10 per share, compared to an adjusted net loss of $54 million or $0.07 per share in the previous-year quarter.

ADT’s revenue and EBIT have grown at CAGRs of 6.9% and 18%, respectively, over the past three years.

Analysts expect ADT’s revenue for the fiscal year ending December 2022 to increase 20% year-over-year to $6.37 billion. The company’s EPS for the current year is expected to come in at $0.51, compared to a loss of $0.25 per share during the previous year. Moreover, ADT’s EPS is expected to grow by 3.9% per annum over the next five years.

Shares of ADT have gained 7.1% over the past month and 20.5% over the past year to close the last trading session at $9.83.

ADT’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. It has an A grade for Growth and Sentiment and a B for Stability.

ADT is ranked #5 of 60 stocks in the Home Improvement & Goods industry. Click here to see the additional ratings of ADT for Value, Momentum, and Quality.

The ODP Corporation (ODP)

ODP is an office supply holding company that offers business services, products, and digital workplace technology solutions through an integrated business-to-business distribution platform and omnichannel presence. It serves small, medium, and enterprise businesses. The company operates through two segments: Business Solutions and Retail.

In August, Office Depot, a wholly owned subsidiary of ODP and Uber Technologies, Inc., teamed up to bring business, office, and school essentials to customers nationwide. Office Depot is the first business solutions and office supply retailer to be available on Uber Eats. This partnership might boost the company’s revenue streams and extend its market reach.

For the fiscal 2022 third quarter ended September 24, 2022, ODP’s reported sales from ODP Business Solutions Division increased 9% year-over-year to $1 billion as more business customers returned to the workplace. Its earnings per share from continuing operations came in at $1.36, up 2.3% year-over-year. Operating cash inflows from continuing operations grew 34.7% year-over-year to $163 million.

Furthermore, the company’s adjusted free cash flow came in at $160 million, up 30.1% year-over-year.

ODP’s EPS has grown at an 85.4% CAGR over the past three years. Moreover, its total assets have increased at a CAGR of 7.6% over the same period.

The consensus revenue estimate of $2.14 billion for the fourth quarter of fiscal 2022 (ending December 31, 2022) indicates a 4.6% year-over-year improvement. Also, analysts expect the company’s EPS to grow 10.7% year-over-year to $0.79. The company has topped the consensus EPS estimates in three of the trailing four quarters.

The stock has gained 26% over the past six months and 22.1% over the past year to close its last trading session at $46.11.

ODP’s solid fundamentals and promising outlook is reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

ODP has a grade of A for Growth and Quality and a B for Value. In the 47-stock Specialty Retailers industry, it is ranked #1.

Click here to access the additional POWR Ratings for ODP (Stability, Momentum, and Sentiment).

Universal Logistics Holdings, Inc. (ULH)

ULH provides transportation and logistics solutions in the United States, Mexico, Canada, and Colombia. It offers truckload services; domestic and international freight forwarding, customs brokerage services; and final mile and ground expedite services.

For the fiscal third quarter ended October 1, 2022, ULH’s total operating revenues increased 13.5% year-over-year to $505.69 million. The company’s income from operations came in at $69.77 million, up 317.4% year-over-year. Its non-GAAP EBITDA was $84.40 million, compared to $33.10 million in the prior year’s quarter.

In addition, the company’s net income increased 371.9% year-over-year to $48.48 million, while its EPS came in at $1.84, representing a 384.2% increase from the prior-year quarter.

ULH’s revenue and EBIT have grown at CAGRs of 4.9% and 8.1%, respectively, over the past three years. Its EPS has improved at a 6.5% CAGR over the same period.

Analysts expect ULH’s EPS for the fiscal year (ending December 2022) to come in at $6.40, indicating a 90.3% year-over-year increase. The consensus revenue estimate of $2.02 billion for the ongoing year represents a 15.4% year-over-year rise. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 92.3% year-to-date and 103.3% over the past year to close the last trading session at $35.98.

ULH’s POWR Ratings reflect this positive outlook. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

ULH has a grade A for Growth. The stock has a grade B for Value, Momentum, Stability, and Sentiment.

ULH topped among the 17 stocks in the A-rated Air Freight & Shipping Services industry. To access the POWR Ratings for ULH, click here.

CVS shares were unchanged in premarket trading Wednesday. Year-to-date, CVS has gained 0.30%, versus a -14.39% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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Bulls had to slow their roll on Tuesday as the immediate +3.5% rally was shaved by 80% into the close. Why did the rally fritter away? And what does it mean next for the stock market (SPY) going forward? 40 year veteran Steve Reitmeister shares his timely market outlook, trading plan and 8 top picks to generate gains in the weeks ahead.

It felt like every trader on earth hit the buy button at 8:30am ET Tuesday morning as the softer than expected CPI report came out. This led to a shocking +3.5% surge in stock futures. If that held up it would have put the S&P 500 all the way up at 4,130.

But that didn’t hold up…neither did the recent high of 4,100…neither did the 200 day moving average at 4033…instead stocks only closed up modestly higher at 4,019.

Why did the rally fritter away? And what does it mean next for the bull/bear battle going forward?

That will be the focus of this week’s Reitmeister Total Return commentary.

Market Commentary

First, and foremost a reminder to watch my “2023 Stock Market Outlook” if you have not already. That’s because it covers the following vital topics:

• Why 2023 is a “Jekyll & Hyde” year for stocks
• 5 Warnings Signs the Bear Returns in Early 2023
• 8 Trades to Profit on the Way Down
• Plan to Bottom Fish @ Market Bottom
• 2 Trades with 100%+ Upside Potential as New Bull Emerges
• And Much More!

Watch Now: “2023 Stock Market Outlook” > 

The above outlook provides an important backdrop in which to discuss all new information including the CPI report from Tuesday morning. Assuming you have watched it already…then let’s pick up the story from there.

Yes, the Consumer Price Index (CPI) came in softer than expected this morning (7.1% yearly increase vs. 7.3% expected). And yes, this softer than expected trend is happening more and more often.

Now the wakeup call.

7.1% is not the same as 2% target (for those with who did poorly in math class).

Also the Producer Price Index last week was higher than expected. And that is the leading indicator of where CPI will be in the future. That’s because these are the input prices for manufactures and service providers which shows up in their offerings down the road. Meaning this softer than expected read may give way to higher readings in the future given the foreshadowing in PPI.

On top of that many of the forms of “sticky” inflation remain, well…STICKY.

Things like wages and rents are still too hot. The former issue of high wage inflation was on display in the 2X higher than expected monthly increase for wages found in the Government Employment Situation report back on 12/5…and helped spark a 4% selloff the following week.

Think of it this way…CPI looks backwards and PPI looks forward. So which is more important? (he asks rhetorically).

Yes, PPI. And that is telling you quite clearly that problem of high inflation is far from solved.

I sense that as the early morning excitement wore off, and investors sobered up, they began to realize that it was a bit too early to celebrate the death of inflation. And perhaps they need to wait to see what the Fed says Wednesday afternoon.

That’s because inflation is like a horror movie monster. You can’t just shoot it once and assume it’s dead. It will keep getting up each time you think the job is done and the death defying chase resumes.

In fact, Powell has discussed this many times over that the worst thing they can do is take their foot of the brakes too soon and inflation comes back with a vengeance. Inflation needs to be “dead and buried” before the Fed reverses course with lower rates.

As great proof of that notice how every time that we have one of these big stock rallies on news of softening inflation that commodity prices soar…which yes, speaks to inflation rising once again. The exact problem we are trying to solve.

Here was the early morning read for energy and key commodities as stock futures soared:

Long story short, the Fed has splashed cold water on exuberant traders several times this year. Thus, it pays to see what happens with the rate hike and announcement on Wednesday afternoon.

50 basis points is the expectation. The real key is the “dot plot” of where rates likely go in the future (how high…for how long) along with any statements they make that foreshadows future plans.

There we will find out if the Fed agrees with traders that inflation is moderating nicely and they do not have to be as hawkish for as long as previously expected. On the other hand, they may state quite clearly that they continue to see inflation as being more sticky and persistent than they would like, keeping them on the job much longer…with more pain to the economy…and likely lower stock prices.

The answer to that tells you whether stocks are truly ready to break out above the all important 200 day moving average (4,033). Or if it is time to head lower once again?

However, we are getting foolishly sucked into the investing worlds myopic fixation on inflation and the Fed. There is much more going on…like the health of the overall economy that is moving closer and closer still to recession. That was the central theme of my 2023 Stock Market Outlook presentation from last week with several leading indicators pointing in that darkening direction.

A prime example of this recessionary concern was on full display Tuesday morning from another low reading for the NFIB Small Business Outlook. Here is the key statement from their report:

“…most of the readings were still consistent with a recession and weak economic activity.”

So as the recessionary storm clouds keep circling…and inflation is far from dead…with the Fed still to keep their foot firmly on the brakes with higher rates on the way …then I see no wisdom in chasing this rally as stocks going down over the next 3-6 months makes a lot more sense then new bull market emerging now.

The only thing at this moment to change my mind is a clear Fed pivot on Wednesday to say indeed inflation is coming under control and they do not need to be as Hawkish as previously advertised.

This is possible…but highly improbable given the slew of statements that have made in the recent past. And that we have already seen the data they are looking at which includes too hot readings for PPI and wage inflation. And the nature they are slow and deliberate. Added altogether and it would be the shock of shocks for them to say “Mission Accomplished” on Wednesday.

Worst case scenario is another 2-3% upside into year end thanks to current momentum plus bullish bias of Santa Claus rally.

On the other hand, if still a bear market…which is the base case…then retreating to the previous lows of 3,491 in the New Years is still in the cards. And likely much lower.

What To Do Next?

Watch my brand new presentation: “2023 Stock Market Outlook” covering:

• Why 2023 is a “Jekyll & Hyde” year for stocks
• 5 Warnings Signs the Bear Returns in Early 2023
• 8 Trades to Profit on the Way Down
• Plan to Bottom Fish @ Market Bottom
• 2 Trades with 100%+ Upside Potential as New Bull Emerges
• And Much More!

Watch Now: “2023 Stock Market Outlook” > 

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return

SPY shares fell $0.22 (-0.05%) in after-hours trading Tuesday. Year-to-date, SPY has declined -14.39%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

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Biotech stocks are often among the market’s most volatile, and Harpoon Therapeutics Inc. (NASDAQ: HARP) offers a perfect example of that.

The stock rocketed to an eight-month high Monday, advancing as much as 191% intraday before settling down to a gain of 22.61%. Shares closed at $1.41 Monday, up $0.26. Tuesday, the stock closed lower after gapping down at the open. 

Monday’s huge upside action followed the company’s release of updated interim results for its myeloma drug that’s in Phase 1 clinical trials. The treatment is currently known as HPN217.

According to Harpoon’s news release, “The interim results, as of the data cut-off date of October 17, 2022, showed that HPN217 demonstrated continued evidence of clinical activity and a tolerable safety profile in heavily pre-treated patients”  with relapsed/refractory multiple myeloma. 

Relapsed/refractory multiple myeloma occurs when a patient has received treatment for a cancer called multiple myeloma, a rare cancer that affects bone marrow. It’s currently incurable, with the most common path being remission interspersed with periods when the disease becomes active. It’s termed relapsed/refractory multiple myeloma when the patient’s condition is especially difficult to treat.

Meaningful Clinical Benefits

“The encouraging initial clinical activity with deepening and durable responses observed in patients who have received multiple prior lines of therapy, combined with a generally well-tolerated safety profile, suggest the investigational T cell engager HPN217 may offer meaningful clinical benefits for patients with relapsed/refractory multiple myeloma,” said Al-Ola A. Abdallah, a doctor at the University of Kansas Medical Center, a principal investigator in the study. 

“I look forward to continuing to study this promising drug candidate in these patients with advanced disease for whom there remains a significant unmet need for new treatment options,” Abdallah added.

Remarks like those gave investors hope.

San Francisco-based Harpoon went public in February 2019 at $14. The stock essentially meandered sideways until June of last year, when shares began declining. 

On a rolling one-week basis, Harpoon is up 95.67%, although shares reversed lower in Tuesday’s season. 

That type of action suggests quick profit-taking in the face of clinical-trial news that doesn’t directly lead to the monetization of a drug. 

That’s especially true with a small company like Harpoon, whose market cap is just $31.1 million. Consistent with a company this size, Harpoon’s beta is 1.72, meaning it’s 172% more volatile than the broader market, as measured by the S&P 500 over a 12-month period. 

Of course, a stock with a market cap of $31.1 million isn’t directly comparable to an index of the largest U.S. companies, but that still offers an indication of Harpoon’s propensity toward volatility. 

Industry Home To Top Performers

The biotech industry is home to several large, well-established companies, including Amgen Inc. (NASDAQ: AMGN), Gilead Sciences Inc. (NASDAQ: GILD), Regeneron Pharmaceuticals Inc. (NASDAQ: REGN), Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) and Moderna Inc. (NASDAQ: MRNA). All are components of the S&P 500, and all are outperforming their index.

With many smaller companies within the industry also boasting market-beating performance, the group as a whole is outpacing most others. Pharmaceutical wholesalers and medical device makers are also showing higher returns than the broader market in recent months.

Harpoon remains a speculative stock. It’s often the case that biotechs become attractive acquisition targets if they have a treatment that a larger company wants to market. That could well be the case with Harpoon, although buying a stock with that strategy in mind is risky, as an investor may incur a large opportunity cost while waiting. 

Harpoon has never been profitable, and analysts don’t see that changing anytime soon, although losses are narrowing and estimates have been revised higher recently. 

In November, the company announced a corporate restructuring designed to slash operating expenses and better focus on clinical programs, including HPN217, that are expected to drive long-term growth.

Revenue for the most recent quarter came in $13.6 million, up 204% from the year earlier. The company attributed the increase to research and development services performed in a collaborative agreement with AbbVie Inc. (NYSE: ABBV). 

Like other department stores, Kohl’s Corporation (NYSE: KSS) is hoping consumer confidence improves during the holiday shopping season. The Fed, on the other hand, would rather not see Americans getting more positive about the economic environment. This runs the risk of inflation heating back up at a time when Chairman Powell and company are trying to keep it down.

Retailers and investors alike are therefore left to decipher when good news is truly good for the stock market — or just another reason for the Fed fire extinguisher to raise rates. 

The latest University of Michigan sentiment survey is a prime example. A better-than-expected 59.1 reading revealed that consumers are in better spirits. Price increases are moderating and gift deals aplenty.

This should mean Kohl’s is in for a strong fourth quarter that carries over to 2023, right? Not so fast. 

The company still has several challenges to work through that go beyond consumer confidence. Even though its shares have dipped back to within a few bucks of a 52-week low, investors should not be loading up the shopping cart just yet.

How Did Kohl’s Perform in the Third Quarter?

There’s a reason that ugly Christmas sweater is marked down 50%. Kohl’s profits were down by the same percentage in Q3. 

Management acknowledged that inflation continues to hit hard. Faced with higher prices everywhere, the middle-class households in Kohl’s wheelhouse simply aren’t spending as much. They are buying fewer items and shifting to cheaper value brands. 

In a way, the trade-down is a positive. About one-third of Kohl’s sales come from private label and exclusive merchandise which typically carry higher margins. These brands outperformed national brands for the second straight quarter. 

Unfortunately, this hasn’t been enough to help the bottom line because of Kohl’s rising cost structure. When you operate more than 82 million square feet of retail space mostly located in strip malls, leasing, utilities, wage and other expenses can add up. Along with increased freight costs and promotional activity, the Q3 gross margin dropped from 39.9% to 37.3%.

What Other Headwinds is Kohl’s Facing?

Kohl’s chunk of the retail sales pie has been declining for years. The Amazon effect and the emergence of other online retailers have made it difficult for the department store to be relevant. Given the accelerated shift to e-commerce caused by the pandemic, Kohl’s uphill battle has only become steeper.

Yes, Kohl’s does have an online storefront and has made improvements in this arena over the last couple of years. The problem is digital sales are trending backward when other traditional retailers have strong digital growth offsetting brick-and-mortar weakness. Kohl’s digital sales fell 8% last quarter, a significant result because they accounted for nearly 30% of total sales.

The sales mix is also an issue in this economy. With consumers spending more on groceries and other essentials, little room is left for discretionary purchases. For Kohl’s, it’s a recipe for failure given roughly one-half of all sales are derived from clothing and another one-fifth from home goods. Nudist colonies aside, clothes are arguably essential — but when budgets are stressed, existing wardrobes get called upon to go the extra mile.

Another major question mark is leadership. CEO Michelle Gass is leaving Kohl’s for Levi Strauss where she is expected to eventually take on the same role. This has created a void that has yet to be filled and an air of uncertainty around the new leadership team’s strategy. How the new CEO meshes with activist investor Macellum Advisors is another big matzo ball of uncertainty.

What are Wall Street’s Revenue Estimates for Kohl’s?

An unexpected management upheaval and a tough economic climate prompted Kohl’s to withdraw its fourth-quarter and full-year guidance. Never a comforting move, especially considering the importance of the holiday shopping period. Consumers may be gaining confidence, but Kohl’s shareholders sure aren’t.

For Q4, Wall Street is forecasting a fourth straight quarter of lower revenue. Consensus estimates for the next three quarters call for goose eggs, i.e. 0% growth. Annual sales have yet to return to pre-Covid levels, so the lack of forecasted growth is especially troublesome — and spells further market share losses to the Amazons of the world. 

The trailing P/E ratio of 6x may seem to put Kohl’s on the bargain rack but this is a value trap. Cost inflation, a secular shift to e-commerce and an interim CEO at the helm amount to a lot of uncertainty. The valuation is where it is because a Kohl’s investment carries a ton of risk. Sales have barely budged from 2019 levels, so for the stock to be hovering near its pandemic low makes perfect sense.

Kohl’s board contemplated a sale in July 2022 but decided a retail slowdown and rising interest rates didn’t add up. Since then, the stock has gone sideways as the market awaits the next potential catalyst. It doesn’t appear M&A will come to the rescue anytime soon, so Kohl’s will likely be a ‘show me’ turnaround story two-plus years in the making.

Stronger-than-expected jobs data might lead to the Fed lifting rates higher than investors expect. Increased recessionary fears have sparked a market sell-off lately. Given a highly uncertain market backdrop, we think it could be wise to avoid fundamentally weak popular stocks Block (SQ), Roku (ROKU), and Lucid (LCID), which investors have been recently selling short. Keep reading….

The stock market and economy have struggled significantly this year due to multi-decade high inflation, aggressive monetary policy tightening by the Federal Reserve, the economic fallout from Russia’s invasion of Ukraine, and the growing possibility of a recession.

The Fed raised interest rates this year at the fastest since the 1980s, including 75 basis point hikes in the last four meetings to combat persistently high inflation. Since the Consumer Price Index (CPI) data for October came in cooler than expected, Fed Chair Jerome Powell hinted that the central bank is prepared to downshift the size of rate increases at its meeting this month.

While Fed officials signaled plans to raise their benchmark interest rate by 50 basis points this week, the strong November jobs report underscores the risk that the Fed will take the terminal rate above 5%. Moreover, the central bank seems willing to cause a recession to fight against stubborn inflation.

Continued fears of a recession have turned 2023 stock market predictions unusually bearish. Most big shots, including Bank of America (BAC) and Morgan Stanley (MS), expect stocks to crash more than 20% next year.

Given the current challenging market conditions, investors are short-selling popular yet fundamentally weak stocks Block, Inc. (SQ), Roku, Inc. (ROKU), and Lucid Group, Inc. (LCID). So, these stocks could be best avoided now.

Block, Inc. (SQ)

SQ creates tools enabling sellers to accept card payments and offers reporting, analytics, and next-day settlement. It provides various hardware products, software products, and a developer platform. The company serves the United States, Canada, Japan, Australia, France, Ireland, Spain, and the United Kingdom.

SQ has seen an unusual options activity lately. Around 993 put options were traded on December 9, indicating a bearish sentiment surrounding the stock.

For the fiscal 2022 third quarter ended September 30, 2022, SQ’s total operating expenses increased 45.6% year-over-year to $1.62 billion. Its operating loss came in at $48.79 million, compared to an operating income of $22.99 million in the prior-year period.

In addition, the company’s net loss attributable to common stockholders came in at $14.71 million, compared to a net income attributable to common stockholders of $84,000 in the year-ago period. In addition, its total liabilities were $12.59 billion as of September 30, 2022, compared to $11.71 billion as of December 31, 2021.

SQ’s trailing-12-month gross profit margin of 32.72% is 34.3% lower than the industry average of 4.77%. Also, its trailing-12-month ROCE, ROTC, and ROTA of negative 5.18%, 1.51%, and 1.73% compare to the industry averages of 5.00%, 3.34%, and 1.66%, respectively.

Analysts expect SQ’s EPS and revenue for the fiscal period ending December 31, 2022, to decline 36.8% and 0.9% year-over-year to $1 and $17.50 billion, respectively. The stock has slumped 60.6% year-to-date and 65.4% over the past year to close the last trading session at $64.60.

SQ’s POWR Ratings reflect bleak prospects. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Within the F-rated Financial Services (Enterprise) industry, it is ranked #84 out of 104 stocks. The company has a D grade for Momentum, Stability, and Quality.

Click here to see the additional POWR Ratings of SQ for Growth, Value, and Sentiment.

Roku, Inc. (ROKU)

ROKU operates a TV streaming platform through two segments: Platform and Player. Its platform enables users to discover and access various streaming content and content publishers to build and monetize large audiences. ROKU’s streaming players and TV-related audio devices are available through direct retail sales and licensing arrangements with service operators.

On December 9, around 5,185 put options for ROKU were traded, indicating bearish sentiment.

For the fiscal 2022 third quarter ended September 30, 2022, ROKU’s gross profit declined 2% year-over-year to $356.79 million. Its operating expenses increased 70.7% from the year-ago value to $503.78 million. Its income from operations came in at $146.99 million, compared to income from operations of $68.85 million in the prior year’s quarter.

The company’s net loss came in at $122.18 million and $0.88 per share, compared to a net income of $68.94 million and $0.48 per share in the year-ago period, respectively. 

ROKU’s trailing-12-month gross profit margin of 46.61% is 7.4% lower than the industry average of 50.3%. The stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 8.68%, 4.78%, and 5.40% compare to the industry averages of 6.18%, 4.13%, and 2.30%, respectively.

Analysts expect ROKU’s loss per share for the first quarter of fiscal 2023 (ending March 2023) to widen 449.1% year-over-year to $1.04. The consensus revenue estimate for the same quarter indicates a decline of 2.4% year-over-year to $716.16 million. Also, the consensus loss per share estimate of $4.28 for the next fiscal year (ending December 2023) indicates a worsening of 19.7% year-over-year.

The stock has plunged 44% over the past six months and 77.8% year-to-date to close the last trading session at $51.74.

ROKU’s POWR Ratings are consistent with this bleak outlook. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.

It has an F grade for Growth and a D for Stability and Sentiment. Within the Consumer Goods industry, it is ranked #55 out of 59 stocks. To see the other ratings of ROKU for Momentum, Value, and Quality, click here.

Lucid Group, Inc. (LCID)

Technology and automotive company LCID develops electric vehicle (EV) technologies. The company builds and markets electric vehicles, EV powertrains, and battery systems. It operates more than 20 retail studios in the United States. The stock has seen unusual options activity lately. On December 9, about 791 put options for LCID were traded, indicating a bearish sentiment.

For the fiscal 2022 third quarter ended September 30, 2022, LCID’s total cost and expenses increased 77.6% year-over-year to $882.98 million. Its loss from operations widened by 38.3% from the previous year’s quarter to $687.52 million. The company’s adjusted EBITDA loss came in at $552.90 million, worsening 125.7% year-over-year.

In addition, the company’s net loss widened by 1.1% year-over-year to $530.10 million, while its net loss per share attributable to common stockholders came in at $0.40. Its non-GAAP free cash outflow was $859.53 million, up 123.6% year-over-year.

LCID’s trailing-12-month gross profit margin of negative 213.72% compares to the industry average of 35.41%. Its trailing-12-month asset turnover ratio of 0.06% is 94.3% lower than the industry average of 1.01%. In addition, its trailing-12-month ROCE and ROTC of negative 46.49% and 27.38% compare to the industry averages of 12.92% and 6.59%, respectively.

Analysts expect LCID’s loss per share to widen 45.6% year-over-year to $0.43 for the current quarter ending December 31, 2022. Also, the consensus loss per share estimate of $1.31 for the next fiscal year indicates a worsening of 10.9% year-over-year. The company has a disappointing earnings surprise history since it missed its consensus EPS estimates in three of the trailing four quarters.

Over the past six months, the stock has declined 54% and 78.8% year-to-date to close the last trading session at $8.68.

LCID’s poor fundamentals are reflected in its POWR Ratings. The stock’s overall F rating translates to a Strong Sell in our proprietary rating system.

LCID has an F grade for Value, Quality, Stability, and Sentiment. Within the D-rated Auto & Vehicle Manufacturers industry, it is ranked #56 out of 62 stocks. 

Click here to see the additional POWR Ratings for Momentum and Growth for LCID.

SQ shares fell $0.60 (-0.93%) in premarket trading Monday. Year-to-date, SQ has declined -60.00%, versus a -16.24% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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Interactive entertainment restaurant operator Dave & Buster’s Entertainment, Inc. (NASDAQ: PLAY) is proving that its possible to mitigate both inflationary pressures and falling consumer discretionary spending. They are in a sense the last man standing when it comes to stand-alone video game arcades combined with dining.

While movie theaters like AMC Entertainment Holdings, Inc. (NYSE: AMC), Cinemark Holdings, Inc. (NYSE: CNK) and Cineworld Group plc (OTCMKTS: CNNWF) are struggling to rebound back to pre-pandemic levels due to the migration to streaming movies at home, Dave & Busters is purely an experience that can only be had away from home.

They have pioneered the concept of huge, bold, blaring, bright, action-packed carnival-like video game entertainment with prizes, a sports bar, pool tables, skeeball, and a restaurant all packed into one huge coliseum-sized location. It overwhelms the senses the moment you step into Dave & Buster’s as if entering another world.

It’s the experiential factor that has driven their business back up through pre-pandemic levels. Rather than a pullback during normalization, the pent-up demand has actually cemented a higher baseline proving that consumers will still spend on truly experiential entertainment and dining.  

A Beautiful Union

On June 29, 2022, Dave & Busters acquired dining and entertainment franchise Main Event Entertainment based out of Dallas, TX, for $835 million. They expect to generate up to $25 million in cost synergies as the complementary businesses target the full demographic of customers from kids to Gen-X-ers. Dave & Busters has been around for over 40 years and understands the concept of generational customers.

The Gen-X-ers that grew up with them now have children they can bring into the restaurants. While Dave & Busters itself caters more to the sports bar and older gaming crowd, Main Event caters to families and younger children. This makes the union between Dave & Busters and Main Event a logical and synergistic match-up.

Truly Experiential

Unlike movie theater chains, Dave & Busters doesn’t rely on third-party content suppliers like movie studios including The Walt Disney Company (NYSE: DIS) , Comcast Corporation (NASDAQ: CMCSA) or Warner Bros Discovery, Inc. (NYSE: WBD) for big releases to draw people to their locations. It’s even worse when they’re competing with the very same studios for eyeballs as they release their movies on streaming even quicker now. While the movie theater experience can be emulated at home with ever cheaper 4K LED televisions and sound bars, Dave & Busters has to be experienced away from home. It’s truly an experiential dining concept that has stood the test of time and economic backdrops.

Descending Triangle Looms

The weekly candlestick chart on PLAY stock shows progressively lower highs on bounces against a flat low on falls. This sets up a descending triangle where the lower highs is the unstoppable force versus the immoveable object of the flat lows near the $30.50 baseline. As the range gets closer to the apex point, shares will eventually either breakdown through the $30 level making new 52-week lows or breakout through the falling trend line.

The 20-period exponential moving average (EMA) has been choppy at $37.46 along with the weekly 50-period MA at $38.59. The weekly stochastic is starting to cross over back down as selling volume was heavy after its Q3 2022 earnings release. The market structure high (MSH) sell triggers under $36.02 and the market structure low (MSL) buy triggers above $33.26, which also happened to be the support level it bounced off during the earnings sell-off.

Pullback support areas sit at the $33.26 weekly MSL trigger, $30.92 triangle support, $29.60 swing low, $28.05, $25.52, and $23.96.

Record Sales and Cost Savings Growing

On Dec. 6, 2022, Dave & Buster’s released its third-quarter fiscal 2022 results for the quarter ending October 2022. The Company reported an earnings-per-share (EPS) profit of $0.04 excluding non-recurring items. Revenues rose 51.3% year-over-year (YoY) to $481.21 million and beating consensus analyst estimates for $470.78 million. Pro forma comparable sales at Dave & Buster’s and combined Main Event locations rose 13.3% YoY and 17.5% compared to same quarter 2019 pre-covid.

Dave & Busters is on track to realize its $25 million annual cost synergy savings having already implemented $17 million to date. The Company opened 3 new locations in California. The Company ended the quarter with $599.3 million in liquidity including $108.2 million in cash and $491.1 million in $500 million revolver.

Dave & Buster’s CEO Chris Morris commented, “We are pleased to report strong financial results for the third quarter. We delivered record revenue driven by double-digit comparable sales growth, resulting in record Adjusted EBITDA.” He concluded, “The future is incredibly bright for this new organization, and I am excited about sharing our progress with you over the next few years.”

A Sneak Peek at Q4 2022

As has been a custom lately, Dave & Buster’s provided a sneak peek into the first five-weeks of Q4 2022. Comparable store sales during the period rose 3.1% YoY and 9.2% over Q4 2019. Pro forma comparable combined walk-in store sales fell (-2.4%) YoY but was up 15.7% over Q4 2019. Pro forma Special Events comparable sales rose 65.3% YoY but fell (-21.7%) versus Q4 2019.

Comcast is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.