- Retail sales data, Q3 earnings season tidal wave, geopolitical fears in focus.
- Lululemon is a buy on news that it will be added to the S&P 500.
- Pfizer is likely to underperform after its shocking forecast cut.
- Looking for more actionable trading ideas to navigate the current market volatility? InvestingPro members receive exclusive ideas and guidance to navigate any climate. Learn more “
Stock prices on Wall Street closed mostly in the red on Friday, capping a volatile week as a rise in oil prices and rising inflation expectations spurred investors into riskier bets.
Despite Friday’s weak performance, the blue chip rose 0.8% for the week, the benchmark gained 0.4%, while the tech-heavy stock fell 0.2%.
S&P 500 vs. Nasdaq vs. Dow
The week ahead is expected to be busy again as investors continue to assess the outlook for the economy, inflation, interest rates and corporate earnings.
Most important on the economic calendar will be the U.S. report for September on Tuesday, with economists estimating an overall increase of 0.2%, after sales rose 0.6% in the previous month.
Investors will also be watching a speech on Thursday closely for clues on the outlook for interest rates. According to data from Investing.com, financial markets as of Sunday morning believe there is a 94% chance that the Fed will leave interest rates at current levels at its November meeting.
Meanwhile, third-quarter earnings season is in full swing, with Tesla (NASDAQ:) and Netflix (NASDAQ:) leading the way. Other notable companies reporting include Bank of America (NYSE:), Goldman Sachs (NYSE:), Morgan Stanley (NYSE:), American Express (NYSE:), Johnson & Johnson (NYSE:), Procter & Gamble (NYSE: ), AT&T (NYSE:), American Airlines (NASDAQ:), United Airlines (NASDAQ:) and Taiwan Semiconductor (NYSE:).
In addition to earnings, investors will also be keeping an eye on news from the Middle East as fears grow that the war between Israel and Hamas could exacerbate geopolitical tensions in the region.
Regardless of which way the market goes next week, I’d like to highlight one stock that’s likely to be in demand and another that could see another downside move.
However, remember that my time frame is only for the coming week. Monday, October 16th – Friday, October 20th.
Stock to Buy: Lululemon
I believe Lululemon (NASDAQ:) stock will outperform in the coming week following the announcement that the yoga apparel retailer’s shares will be added to the benchmark S&P 500 index.
S&P Dow Jones Indices said late Friday that the Vancouver-based sportswear maker will join the widely followed index, which tracks the stock performance of 500 of the largest U.S.-listed companies, before trading opens on Wednesday, Oct. 18.
Lululemon replaces video game company Activision Blizzard (NASDAQ:), whose $69 billion acquisition by Microsoft (NASDAQ:) closed on Friday after overcoming numerous regulatory hurdles.
History has shown that stocks often experience a rally following the announcement of their inclusion in the S&P 500. In general, stocks that make the jump typically benefit from increased liquidity and greater interest from retail and institutional investors, two factors that can potentially boost a company’s stock price higher.
Previous studies have actually found that the stock price of companies added to the S&P 500 increases as index-tracking passive mutual funds are forced to purchase stocks to align with the S&P 500’s new composition.
LULU stock ended Friday’s session at $377.69, not far from a 52-week high of $406.75 hit on September 1. At current levels, Lululemon has a market capitalization of around $48 billion, making it one of the most valuable sportswear companies in the world.
Shares are up 17.9% year-to-date, much better than the 3% decline seen by the SPDR® S&P Retail ETF (NYSE:), which tracks a broad-based, equal-weighted index of U.S. retail companies in the S&P 500.
It’s worth noting that, according to InvestingPro’s quantitative models, Lululemon stock remains extremely undervalued and could see an increase of about 18% from Friday’s closing price to its “fair value” target of about $446 .
Despite a challenging environment for retailers, investors have become more bullish on the sportswear brand as it benefits from favorable consumer demand trends and an improving fundamental outlook. Lululemon has beaten Wall Street’s earnings expectations for 13 consecutive quarters, a testament to the strength of its underlying business, loyal customer base and strong execution across the company.
Stock for sale: Pfizer
I believe Pfizer (NYSE:) stock is in for a difficult week, with a possible decline to new 52-week lows on the horizon as investors react to new negative developments affecting one of the world’s largest pharmaceutical companies plague.
Pfizer on Friday cut its full-year revenue forecast by $9 billion as sales of its COVID-19 vaccine and treatment fell short of expectations. The company expects a $7 billion drop in sales for its antiviral Covid treatment pill Paxlovid and a $2 billion drop in sales for its Comirnaty Covid vaccine made with BioNTech (NASDAQ:).
As a result, Pfizer management now expects 2023 revenue to be between $58 billion and $61 billion, a significant decline from its previous forecast of $67 billion to $70 billion.
Pfizer executives, including CEO Albert Bourla, will hold a conference call with investors at 8 a.m. EST on Monday to discuss the new outlook.
The pharmaceutical giant also warned that it will incur a one-time cash charge of $3 billion, including related to severance payments, as it implements new cost-cutting measures.
PFE shares, which fell to a more than two-year low of $31.77 on September 28, closed at $32.12 on Friday. At current levels, the New York-based drugmaker has a market capitalization of $181.3 billion.
Shares have significantly underperformed the broader market in 2023, falling 37.3% year-to-date due to a significant decline in sales of its Covid-related product portfolio.
An InvestingPro survey of analysts’ earnings revisions highlights several headwinds facing Pfizer in the current environment and suggests increasing pessimism ahead of the company’s Q3 update on October 31. 14 out of 15 analysts have lowered their EPS estimates.
InvestingPro allows you to conveniently access complete and comprehensive information about various companies in one place on a single page, eliminating the need to collect data from multiple sources and saving time and effort.
Disclosure: At the time of writing, I am long the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 via the SPDR Dow ETF (DIA), the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). ). Additionally, I have a long position on the Energy Select Sector SPDR ETF (NYSE:) and the Health Care Select Sector SPDR ETF (NYSE:).. I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and company financials. The views discussed in this article represent solely the opinion of the author and should not be construed as investment advice.
Comments are closed.