Stocks ticked higher to close the week, but it was not enough to make up for earlier losses as the market processed another aggressive Fed rate hike. The major averages notched 1% gains on Friday but finished lower for the week. The Dow broke a four-week winning streak with a loss of 2.5%, while the S&P and the Nasdaq lost 4.5% and 6.1%, respectively.
Investors looking for hints of Fed dovishness were disappointed on Wednesday to find no indication that the Fed may be poised to pause its tightening campaign. Fed Chair Jerome Powell said that the central bank still has “some ways to go” before the current rate hike cycle is over, noting that “incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.”
Labor data released this morning further fueled concerns that the Fed will push the economy into a recession with its aggressive stance in the battle against inflation. This morning’s payrolls release showed 261,000 jobs were added in October, surpassing the expectations of 205,000 additions.
After another rough week, here are two recommendations of stocks to buy and one stock to stay away from.
37 U.S. states and four U.S. territories have laws that permit the use of marijuana. While it is still illegal on a Federal level, President Biden’s proclamation on October 7th included a request for the attorney general “to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.” Many see this as a major step in the right direction, but it’s expected to be a slow road.
The potential legalization of cannabis is likely to be a significant positive catalyst for the leader in net cannabis revenue, Tilray (TLRY). The company has a presence in all key markets, with a focus on recreational and medicinal cannabis; the addressable market is significant and expanding.
Following the recent Whitehouse announcement, TLRY surged 22% but gave back some gains when the company reported Q1 2023 revenue and EPS misses. The company has its sights set on Revenue of $4 billion by 2024, a realistic target if regulatory hurdles wane. At $3.17 per share, TLRY currently trades at -8.5x forward earnings. The stock remains deeply oversold and is worth buying even after the recent uptick.
Global healthcare leader Eli Lilly And Company (LLY) has been creating high-quality medicines for more than a century. The drug firm focuses on endocrinology, oncology, neuroscience, and immunology. Key products include Trulicity, Jardiance, Humalog, and Humulin for diabetes; and Taltz and Olumiant for immunology; and Verzenio and Alimta for cancer.
The mega-cap pharmaceutical giant’s pipeline is locked and loaded with promising advancements, which means plenty of upcoming potential opportunities for investors to benefit from. In the first half of 2022, Lilly received word that the FDA was fast-tracking its investigation of tirzepatide. A drug designed to treat adults who are overweight with weight-related comorbidities such as diabetes. Eli Lilly expects its rolling application to be completed by April 2023.
JPMorgan analyst Chris Schott recently summed up his bullish outlook on LLY. The analyst believes that Eli Lilly remains the best-positioned growth story in his coverage and one of his top picks following the stock’s pullback over the past month. The analyst sees a “significant opportunity” for Tirzepadite in type 2 diabetes and obesity, which in his view, “warrants increased attention.” Schott currently gives the stock an Overweight rating and a $300 price target.
Lilly’s share price is up nearly 20% this year and seems likely to continue to gain steam into the new year. The stock sports a dividend of $0.98 or 1.21% annually. LLY’s dividend payout for the year is set for the low 40% range, which should allow for robust future dividend growth.
A strong pipeline and a stable dividend make Eli Lilly an attractive consideration. The pros on Wall Street also think so. Among 17 polled analysts, 14 say to Buy LLY, 2 call it a Hold, and only 1 rates the stock a Sell. A median 12-month price target of $351 represents a 9% increase from its current price.
Rising interest rates and a cooling off of the red-hot housing market create a challenging backdrop for mortgage provider Rocket Companies (RKT). The average rate on a 30-year fixed-rate mortgage surged to nearly 7% last week, its highest level in over 20 years, according to Freddie Mac. Mortgage rates have more than doubled since the start of the year when the average 30-year mortgage stood at 3.11%. Furthermore, the Mortgage Bankers Association recently reported that mortgage application volume is down 37% year-over-year. This situation won’t likely resolve anytime soon as the Federal Reserve isn’t signaling a near-term slowdown in monetary policy tightening.
Rocket has struggled to meet expectations for the past few quarters as it laps 2021’s blockbuster numbers. Most recently, the company came out with adjusted quarterly earnings of -$0.03 per share, missing the consensus estimate of $0.02 per share. This compares to earnings of $0.46 per share a year ago. Revenue was reported as $1.44B, down nearly 48% from the same period last year and 26% lower than the consensus estimate.
Rocket’s been underperforming the broader market so far in 2022. RKT shares have lost about 55% since the beginning of the year versus the S&P 500’s decline of 20%. The pros on Wall Street say to Hold RKT. Of 16 analysts offering recommendations, 2 rate the stock a Buy, 12 rate it a Hold, and 2 say to Sell RKT shares.
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