The Zacks Analyst Blog Highlights: Western Digital, Cardinal Health, HP, Lennar and KB Home

For Immediate Release

Chicago, IL – March 11, 2020 – 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: Western Digital Corp. WDC, Cardinal Health Inc. CAH, HP Inc. HPQ, Lennar Corp. LEN and KB Home KBH.

Here are highlights from Tuesday’s Analyst Blog:

How to Invest in a Volatile Market Amid a Stable Economy

On Mar 9, Wall Street put up its worst performance since the last recession in 2008. The coronavirus outbreak and an unexpected crude oil price war between the OPEC and Russia-led consortium resulted in the collapse of the global stock markets.

Meanwhile, despite the virus-driven global disturbance, which forced several corporate behemoths to reduce their financial outlook, the U.S. economy remains stable as indicated by recently released various data for the month of February.

Severe Turmoil on Wall Street

In addition to the coronavirus-led mayhem, crude oil price war between the OPEC and Russia-led group heightened as these cartels failed to reach an agreement on production cut to restore oil price. Moreover, Saudi Arabia slashed its crude oil prices for April delivery. Consequently, both Brent and WTI crude touched their lowest level since the Gulf War of 1991. Precipitous decline in oil prices will significantly hurt U.S. oil companies.

On Mar 9, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — plunged 7.8%, 7.6% and 7.3%, respectively. In fact, the Dow plummeted 2,013.7 points, recording its worst-ever single-day performance pointwise and biggest single-day drop percentagewise since Oct 15, 2008. The indexes are currently very close to entering bear market territory (defined as a drop of 20% or more from its latest high level).

U.S. Economy Remains Stable Despite Stock Market Rout

The U.S. economy, which is currently approaching a historic 11 years of expansion, is yet to show any significant indication of contraction. In fact, a series of data for the last month is shows a different picture.

The U.S. labor market stayed rock-solid with 273,000 job additions in February, well above the consensus estimate of 175,000. Unemployment rate declined to 3.5%, its 50-year low. Wage rate grew 3% year over year while the average work week, considered a key measure of productivity, increased to 34.4 hours. Moreover, the conference report stated that U.S. consumer confidence inched up to 130.7 in February from 130.4 in January.

Meanwhile, ISM services index jumped to 57.3% in February, the highest level in one year. The ISM manufacturing index declined slightly in February to 50.1% from 50.9% in January. However, the sagging manufacturing sector witnessed two consecutive months of expansion after contracting in the last four months of 2019.

Stimulus Measures

The U.S. government has released $8.3 billion emergency funds to fight the spread of the coronavirus domestically. The Trump administration is thinking of a possible payroll tax-cut in order inject more money into wage earners’ pockets. Governments of G-7 nations are likely to take concerted measures to withstand coronavirus impact.

The Fed reduced federal fund rate by 50 basis points on Mar 3 on an emergency basis. Despite this, per the CME Fed Watch, the market has assigned 100% probability of another cut of 75 basis points in FOMC meeting scheduled for Mar 17-18. Several other central banks are likely to inject more stimuli to ensure sufficient liquidity in the respective economies.

Three Possible Investment Strategies

On Mar 9, the COBE VIX — recognized as the best volatility index of Wall Street — jumped nearly 30% to 54.46, breaking the technically and psychologically vital barrier of 50.  This clearly indicates that the market will remain choppy in the near term. However, a few investment strategies are likely to be prudent at this juncture.

Invest in large-cap (market capital > $25 billion) stocks with a Zacks Rank #1 (Strong Buy) that are trading at a good discount. You can see the complete list of today’s Zacks #1 Rank stocks here.

These companies have established business model and strong pipeline. It would be wise to select stocks with solid growth rate and robust earnings per share (EPS) estimate revision in the past 30 days.

On the same day, the yield on 10-Year Treasury Note plunged to a historic low of 0.3% before settling at 0.5%. Yield on 30-Year U.S. Treasury Note yield fell below 1% for the first time, as investors rushed to safe-haven government bonds from equities. However, record-low Treasury yields are likely to help some stocks emerge as a lucrative alternative in this uncertain financial climate.

So, invest in stocks of companies which, have a history of paying out regular dividend, with higher dividend yield (>3%). Select stocks with a Zacks Rank #1, market capital > $10 billion, strong growth rate and robust EPS estimate revision in the past 30 days. Stocks that fall under this category include Western Digital Corp., Cardinal Health Inc. and HP Inc.

While almost all industries have been bearing the brunt of this turmoil, one industry —home builders — are likely to gain. A stiff reduction in yield of the 10-Year US Treasury Note will result in a record-low mortgage rate.

Notably, the yield on 10-Year US Treasury Note is closely linked with the mortgage rate. Moreover, existing home owners will be able to refinance their mortgages at a cheap rate. Stocks that fall under this category include Lennar Corp. and KB Home. Each of these stocks carries a Zacks Rank #1.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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