Despite Friday’s rally, stocks finished lower for the week as markets processed disappointing economic data and mixed corporate earnings. Concerns about the pace of further U.S. interest-rate increases remained a focal point for many investors amid fresh data on inflation and retail sales. The S&P 500 shed 0.7%, the Nasdaq lost 1.6%, while the Dow was unchanged for the week.
The week ahead will be shortened in observance of the Thanksgiving holiday. Nevertheless, it will be packed with economic data releases, including minutes from last month’s FOMC meeting, consumer sentiment data, and new home sales. Friday marks the start of the holiday shopping season. Known as a day for astounding bargains, “Black Friday” is seen as a gauge of consumer confidence and retail sector strength heading into the holiday season. Markets will be closed on Thursday and open for a shortened trading day on Friday.
Value-oriented shares have been performing well recently and have been supported by gains in the consumer staples sector. Many experts are proclaiming that value stocks will be en vogue in 2023 – and indeed, many have already started to rally in 2022’s late innings. Our first recommendation is a company from a defensive industry with a reputation for being resilient during times of economic weakness that’s currently trading at a discount and seems to be gaining traction as investors focus more on finding value.
Trusted neighborhood pharmacy Walgreens Boots Alliance (WBA) has always been a popular place for consumers, but like many consumer-driven businesses, Walgreens has been under pressure in 2022. As both a healthcare play and a consumer staples retailer, WBA is known for remarkable stability throughout the years in terms of margins and revenue, making it an attractive option for anyone seeking dependable value.
Last year, the company’s $5.2 billion investment in primary-care business VillageMD set the stage for the launch of doctor’s offices at hundreds of Walgreens locations across the country. While management cautioned that it could take two years for the partnership to scale to “a reasonable level of operations” for patient investors, the collaboration will likely provide solid growth opportunities for the business. Walgreens management sees 1,000 co-located clinics across more than 30 markets by 2027.
Despite rallying more than 30% in recent weeks, WBA is still trading at a significant discount compared to peers. WBA is valued at around 25% of total sales, compared to top competitor CVS Health (CVS), which is currently valued at about 40% of total sales. CVS currently trades at nearly 12 times forward earnings, while WBA trades at less than 7.5 times earnings. WBA also boasts an impressive 4.8% dividend yield, whereas CVS has a yield of just over 2%. The stock is still down 25% this year but may continue to build on recent momentum as investors focus on value.
Video conference platform Zoom Video Communications (ZM) saw spectacular growth during the pandemic, as millions were forced to abruptly transition to working from home. The share price surged in 2020 to $560 per share, only to decline 85% to its current price of almost $82. No doubt that ZM has been a massive disappointment for those who bought in before the grand economic reopening. But anyone who’s been eyeing the stock at this level may get an attractive entry in the coming days.
The company reported mixed Q2 results along with a revision lower for its fiscal 2023 guidance, which falls short of Wall Street expectations. Zoom’s updated guidance calls for 7% annual growth, down from 11%.
Anyone with a longer-term outlook may wonder if Zoom’s pandemic-friendly business model can succeed now that most workers are back in the office at least part-time. Considering that the company has been able to adapt and adjust to the unpredictable highs and lows of the past two years and remains profitable, chances are good that despite the transition from its high-growth days, Zoom isn’t likely fading away anytime soon. The $5.5 billion in cash on its balance sheet should provide a nice buffer for long-term investors and a testament to how profitable the company has been in recent years. Its strong balance sheet is highlighted by a cash-to-debt ratio of 56 times.
The consensus rating for ZM fell to Hold in the second quarter. Consensus revenue and EPS expectations for the upcoming quarterly report have been cut 21 and 23 times in the past 90 days. The consensus expects Q3 EPS and Revenue of $0.84 and $1.10 billion. Anyone looking for a sign that the pandemic high-flier has fallen back to earth may look dead at one. Zoom has exceeded EPS expectations in the 8 past consecutive quarters, missing revenue estimates only once in that timeframe.
U.S.-listed Chinese stocks rose after China announced it would ease quarantine restrictions for international travelers, a sign that China may be on the path to full reopening. With the worst of China’s conditions seemingly in the rearview, it may be time to start looking at stocks from the group to add. Our final recommendation on the list is one of the top choices among Chinese stocks, with an over 90% buy rating on Wall Street.
Founded in 2015, Pinduoduo (PDD) is one of the fastest-growing tech companies in the world. The agriculture-focused e-commerce platform directly connects more than 12 million farmers with distributors and consumers through its interactive shopping experience, allowing users to participate in group buying deals.
In 2017, the company ended its online direct sales model and transitioned to purely providing online marketplace services to third-party merchants across more categories. According to Pinduoduo‘s July 2018 prospectus, this change from a first-party to a third party-marked the start of explosive growth. From there, Duo Duo Live was launched in December 2019 as a live-streaming feature for merchants to promote their wares better. Duo Duo Grocery, a next-day, click-and-collect grocery service, was rolled out in August 2020 as a response to the changing consumer needs for buying groceries in the wake of the COVID-19 pandemic.
Since its Feb 2021 peak, PDD’s share price is down more than 64%. The stock garners a solid Buy rating from the Wall Street pros offering recommendations and a median price target of $84, representing a 20% increase from Friday’s closing price.
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