With Thanksgiving fast approaching, this is normally the time, as an investor, I take a step back and evaluate the things I should be thankful for. If you have been an avid reader of this weekly column, you can tell I’m an optimist by nature. Rarely do I recommend selling rallies or not buying dips. This year more than any other, these strategies have paid off.
Despite inflation running at its highest annual rate in almost thirteen years, there are tons of reasons to remain invested in the market. The low interest rate environment is one of those reasons. There is no alternative. Technology stocks, particularly growth areas of the market that tend to fare better in a lower interest-rate environment, have performed impressively over the past few weeks, offsetting weakness in what was once a promising re-opening trade. But it still appears as investors are looking for clearer direction.
On Friday stocks ended mixed with the Dow Jones Industrial Average trading down 268.97 points, or 0.75%, to close at 35,601.98. The blue chip index was pressured by, among others, declines in Salesforce (CRM), IBM (IBM) and Intel (INTC). Growing concerns over rising cases of COVID-19 in the U.S. and Europe were major factors on investors sentiment. Considerable weakness in Boeing (BA) which lost almost 6% and 2% decline UnitedHealth Group (UNH) also forced the Dow lower.
The S&P 500 Index shed 6.58 points, or 0.14% to close at 4,697.96, while the Nasdaq Composite Index rose 0.4%, gaining 63.73 to end the session at 16,057.44. Gains of more than 4% in Nvidia (NVDA) and a 3.7% rise in Tesla (TSLA) powered the Nasdaq higher and helping the tech-heavy index to post a 1.3% gain for the week. Meanwhile, in the five-day span, the Dow declined 1.3%, while the S&P 500 index added a modest gain of 0.4%.
After a rough start to the month on rising inflationary fears, the market has rebounded thanks to a slew of better-than expected earnings reports. Inflation concerns, which many analysts have debated whether it is transitory, might creep back next week, forcing the Fed to take action. Accordingly, staying in the market is still the best strategy as we head into the holiday shopping season, particularly given the strong revenue and profit growth trend that’s expected to continue well into the new year.
As for earnings, here are the stocks I’ll be watching this week.
Zoom Video (ZM) – Reports after the close, Monday, Nov. 22
Wall Street expects Zoom to earn $1.09 per share on revenue of $1.02 billion. This compares to the year-ago quarter when earnings came to 99 cents per share on revenue of $777.20 million.
What to watch: Zoom shares have been punished considerably over the past six months. The shares have fallen as much as 58% to a recent low of $245 since the stock reached its all-time high of $588.84 in October 2020. During that same span, the S&P 500 has risen some 32%. As vaccine distribution accelerates the market has grown concerned about Zoom’s ability to maintain its impressive growth rate and schools, universities and corporations reopen for in-person work and learn. The company, however, is reportedly looking to diversify its revenue stream by entering the contact center space. Meanwhile, management has done a solid job with profitability, raising the gross margin in each of the last few quarters from about 70% to 73%. The company is looking to pivot after the collapse of the Five9 deal, focusing on a new service named Zoom Video Engagement Center that is expected for launch in 2022. Nevertheless, to reverse the negative downward trend in the stock price, Zoom will have to issue strong revenue growth forecast for Zoom Phone and Zoom Rooms which are critical to growing and maintaining its ecosystem.
Best Buy (BBY) – Reports before the open, Tuesday, Nov. 23
Wall Street expects Target to earn $1.89 per share on revenue of $11.53 billion. This compares to the year-ago quarter when earnings came to $2.06 per share on revenue of $11.85 billion.
What to watch: Evidenced by their strong earnings results, brick-and-mortar retailers such Target (TGT) and Walmart (WMT) have shown they can leverage their scale and execute to withstand the adverse effects of the pandemic. Best Buy also falls into this category. Due to high consumer demand for electronics, Best Buy is expected to report not only strong third-quarter results, but also upside guidance for the holiday quarter. The technology-focused retailer has successfully differentiated itself from competitors, thanks to investments in omni-channel offerings as well as transformation to its supply chain. But with the stock now trading near all-time highs of around $137, it would seem all of the good news is priced in. Is now the time to take profits and move on? That’s what the company must answer on Tuesday.
Dell (DELL) – Reports after the close, Tuesday, Nov. 23
Wall Street expects Dell to earn $2.17 per share on revenue of $26.82 billion. This compares to the year-ago quarter when earnings came to $2.03 per share on revenue of $23.52 billion.
What to watch: Dell has been on a steady uptrend ever since the company completed its spinoff of VMWare (VMW). Dell announced plans in April to spin off its 81% stake in VMWare in a deal to create two standalone companies. Dell acquired its stake in VMWare in 2015 as part of its acquisition of EMC. But is now the right time to buy or will VMWare be the better purchase? The spinoff is part of Dell’s strategic shift to grow its capabilities in the realm of edge computing, cloud services, artificial intelligence, among other high-growth end markets. This is in addition to the PC market which still remains a thriving revenue stream. The company’s Infrastructure Solutions Group and Client Solutions Group, which consist of revenues from datacenter and computing hardware/software sales, account for more than 80% of Dell’s total revenues. And this segment will be the company’s main growth drivers. On Tuesday, beyond a top- and bottom-line beat, investors will want strong guidance from these segments for the quarters and year ahead.
Hewlett-Packard (HPQ) – Reports after the close, Tuesday, Nov. 23
Wall Street expects HP to earn 88 cents per share on revenue of $15.40 billion. This compares to the year-ago quarter when earnings came to 62 cents per share on revenue of $15.26 billion.
What to watch: Is now the right time to bet on HP stock? With the pandemic disrupting in-office and in-person activity across many industries, this has driven millions of consumers across the globe to work and learn from home. As such, the need for better and faster computers have sent PC sales soaring, posting their strongest growth in more-than a decade during the third quarter, according IT research firms Gartner and IDC. Notably, this is despite disruptions in the global supply chain due to the chip shortage. Worldwide PC sales grew 5% sequentially in the third quarter, reaching 84.1 million units. On a year-over-year basis, shipments of notebooks and mobile workstation rose 3% to 67.4 million units, while desktop shipments jumped 12% to 16.6 million units. All of this growth should benefit HP which has seen its stock rise 10% over the past month and 27% year to date. On Tuesday investors will want to see evidence that not only is the growth sustainable, but HP can sustain the recovery in its stock with strong guidance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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