For Immediate Release
Chicago, IL – November 19, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Garmin GRMN, Martin Marietta MLM and SK Telecom SKM.
Here are highlights from Monday’s Analyst Blog:
U.S. Retail Reports In: Global Week Ahead
Complacency reigns supreme. All major U.S. stock indexes have been rising, day-after-day, taking the Q3 earnings season in stride.
“Don’t fight the Fed,” as they always, always say.
The latest Fed rate cut, and a de facto re-start of “QE” by Powell, are two major U.S. monetary pistons firing.
This week, Christine LaGarde opens her game at the ECB. China is going to cut rates slightly.
Along with fresh pulses of pure financial market liquidity, Zacks Research Director Sheraz Mian believes stock traders’ steady appreciation of Q3 results likely reflects relief.
Specifically, we see relief that earnings outlooks have not taken a big hit, as many feared, following growing evidence of a global slowdown.
Entering the week, 455 S&P 500 companies have reported. Total net earnings are down -1.7% on +4.6% higher revenues. 72.3% beat EPS estimates. A much lower 57.8% beat revenue estimates.
- For the Tech sector, we have Q3 results for 86.9%. Tech earnings are down 7.4% on 2.4% higher revenues. 75.5% beat EPS estimates. 66.0% beating revenue estimates.
- For the Finance sector, we have all results in. Finance sector earnings are up 3.0% on 9.3% higher revenues. 72.2% beat EPS estimates. 70.1% beat revenue estimates.
The Retail sector is the sole S&P 500 sector left with a substantial number of reports to go. In the Global Week Ahead, those major retail firms report in.
Next are the latest Reuters’ five world market themes, reordered for equity traders.
(1) The Q3 S&P 500 Earnings End Game: Big Box U.S. Retailer Earnings
Walmartdodged the trade bullet on Thursday with an earnings beat showing its growing market share in groceries helped insulate it from tariffs on Chinese imports. Soon we'll learn whether other retailers have been as well positioned to weather the trade dispute.
Home Depot, Kohl's, Urban Outfitters, Target, Macy's and Gap are among the chains reporting in what will be the end game for third quarter earnings. Based on results from 458 S&P 500 companies that have reported, earnings are down 0.4% from Q3 2018, Refinitiv data shows. Amazon's weak holiday quarter guidance last month fed worries that the trade spat is hurting the U.S. retail industry.
Friday brings advance readings on November purchasing manufacturing indexes (PMIs), as well as the final University of Michigan consumer sentiment print. That should play into the outlook from retailers.
(2) Wither Mainland China and Hong Kong?
China isn't in a great place right now.With the economy slipping deeper in the trade war quagmire, the case for lowering the new lending reference rate, the LPR, is getting stronger.
Industrial production growth has slowed below 5%, steel output is at seven-month lows and third-quarter economic growth is at its slowest in a generation. The central bank has fiddled monetary settings to get things moving, trimming the medium-term lending facility last week by 5 bps. The LPR was cut in August and September; glacial progress towards a trade truce makes another step down in interest rates likely.
Then there's Hong Kong, racked by increasingly violent pro-democracy protests and in recession for the first time since 2009. E-commerce titan Alibaba's $13.4 billion IPO, due in coming days, is seen as a vote of confidence. But demand for the stock has started sucking out cash, raising short-term borrowing costs. These have already shot towards decade-highs marked in July and will rise further if capital starts fleeing. It's not a situation China will be keen to deal with at this point.
(3) Given Recent Data, Is a Global Recession Less of an Issue?
How big a risk is a global economic recession?
Recently, hopes of a fledgling growth turnaround were doused by data showing China's factory output growth slowing in October and Japan's economy grinding to a standstill in Q3. And Germany only narrowly avoided a recession in that period.
Cue "flash" PMIs due on Nov. 22 from Japan and the Eurozone; numbers widely regarded as a forward-looking indicator of economic health.
October PMIs pointed to some stabilization, raising expectations that hefty central bank easing had helped the global economy to bottom out.
On the flip side, Sino-U.S. trade uncertainty drags on, making it harder to call a turnaround in the data. No wonder then, that after weeks of heavy selling, government bond yields are heading down again.
(4) U.K. Election a Month Away
Britain's election is less than a month away and with the two main parties set to release their election manifestos. One thing is for sure: both plan to spend big.
The opposition Labor Party pledged on Friday to nationalize BT's broadband network, proposing to fund that through extra tech sector taxes. It has already suggested nationalizing water and utility firms, an exercise that S&PGlobal estimates could cost 160 billion pounds. The Conservatives, favorites to win, are also wooing voters, with the biggest public service spending increases in 15 years and plans to spend up to 3% of annual output on infrastructure -- almost double historical averages.
Under any election outcome, state spending looks set to rise to levels unseen since the 1970s, predicts think-tank Resolution Foundation. And there's only one place the government can find the money: bond markets. UK public debt stands around 80% of GDP; below U.S. and Japanese levels, but higher spending plus the Brexit hit to growth mean that that ratio can only rise.
Government 10-year borrowing costs have almost doubled since early-September and could move higher, especially if Britain's rating is cut. Moody's recently cut the rating outlook, citing among other things, rising public debt.
(5) The Aftermath of a Spanish Election
Spain looks set for a coalition government comprising the Socialists and the far-left Unidas Podemos-- a prospect that doesn't sit well with markets given Podemos has called a rise in public spending, taxing banks more and rethinking privatization plans for lender, Bankia.
Given that all this coincides with an economic slowdown, it's no surprise that Madrid stocks plunged when the coalition pact was announced. The share index, the IBEX, has since fallen to the lowest level relative to the pan-European STOXX benchmark since the latter was created in 1998. The IBEX is up 7.6% so far this year, while the STOXX has surged 20%. After four Spanish elections in as many years, one would expect investors to be inured to political uncertainty. Indeed, bond yields, while at four-month highs, have reacted less than shares. But the equity selloff shows sentiment remains fragile.
The Socialists/Podemos accord is not a done deal yet. The coalition would also rely on other parties for a parliament majority, potentially tempering big policy swings to the left. And investors also hope Nadia Calviño, the acting economy minister and respected economist, stays in the new government.
Top Zacks Stocks--
Garmin: This is an $18.9B market cap stock at $96 a share. That lofty price tag also delivers a Zacks Value score of D. The Zacks Growth score is D, too.
This is a great GPS company. But the stock currently trades in a richly priced zone. Safe to say that all the good news is priced in after its latest earnings beat. The PEG ratio is 3.1, with a Forward P/E of 23.0.
Martin Marietta:This a $260 share price stock in the Building Products-Concrete and Aggregates space. The Zacks Value score is D, but the Zacks Growth score is B. This stock is on a steady climb upwards in 2019. But again, it’s richly priced. The Forward P/E is 26.3.
Based in Raleigh, NC, Martin Marietta Materials, Inc. produces and supplies construction aggregates and other heavy building materials, mainly cement, in the U.S.
The end uses of the company’s aggregates and cement are infrastructure, private residential and private non-residential construction. Railroad, agricultural, utility and environmental industries also use these products.
SK Telecom:This is a $24 stock with a $15.1B market cap. The SK stands for South Korea. If you are looking for a defensive stock with Asia-Pacific credentials, this one may be worth looking at. I have a Zacks Value score of B and a Zacks Growth score of D. The stock looks to have put in a share price bottom at $22 in August 2019.
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