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Inflation and Volatility: Navigating This Whipsaw Market
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The major indices opened sharply lower Thursday on the heels of a worse-than-expected Consumer Price Index (CPI) print. U.S inflation continued its drastic ascent in January, with prices spanning a wide range of goods and services surging higher amid supply chain issues and lingering scarcities. The indices were able to pare most of the morning losses by midday.
This morning, the Bureau of Labor Statistics released its monthly CPI data point which showed a 7.5% annual gain, topping the 7.3% rise forecasted by leading economists. The gain represented the swiftest pace for the inflationary measure going back to 1982. The widely followed gauge climbed 0.6% from December, reflecting a broad-based increase that included higher energy and food costs.
Even excluding the more volatile food and energy prices, the core CPI rose 6% in January versus the same time a year ago which also marked a 40-year high.
During corrections, the market has a way of reeling investors back in, only to prove the majority wrong and continue to fall. I can’t count on two hands how many times I saw that the bottom was in during the past two weeks. And while the bottom for this recent market move may have been hit in January, making those types of predictions is a fool’s game. We’ll leave that to the bottom-fishers.
We’re going to stick to the plan and identify leading stocks in this tough environment. There’s a lot of whipsaw going on in this market, and when that’s the case it’s best to be cautious and limit any new trade initiations. The time to become more aggressive is when investments are working and volatility remains calm – that isn’t the case at the moment, as the popular VIX volatility gauge spiked 10% higher this morning.
The stock market is dynamic and things can change quickly, so we must be ready to alter our outlook as more data comes in and things progress. Let’s take a look at two leading stocks that are outperforming the market. Both stocks are components of the Zacks Computer and Technology sector, which ranks in the top 38% of all Zacks Sectors.
Drilling down further, these stocks are contained within the Zacks Computers – IT Services industry group, which is also ranked in the top 38% of all Zacks Ranked Industries. Quantitative research studies have historically illustrated that approximately half of a stock’s future price appreciation is due to its industry grouping. By investing in stocks within the top 50% of all Zacks Ranked Industries, we can dramatically improve our investing success.
Dell Technologies develops, markets, and sells information technology solutions and products globally. DELL operates through three segments: Infrastructure Solutions Group (ISG), Client Solutions Group (CSG), and VMware. The company’s ISG segment primarily provides storage solutions, servers, and networking products. The CSG segment offers desktops, workstations, notebooks, displays, and projectors. The VMware segment produces IT solutions for DELL’s diverse client base, offering a cloud-based platform that enables its customers to gain a strategic advantage. Dell Technologies was founded in 1984 and is headquartered in Round Rock, TX.
DELL boasts an impressive history in terms of earnings surprises, surpassing estimates in each quarter for the past three years. The IT provider most recently reported Q3 EPS back in November of $2.37, a +1.72% surprise over the $2.33 consensus estimate. DELL has delivered an average earnings surprise of +17.93% over the past four quarters, aiding the stock’s market-beating 52.39% run during the past year.
Image Source: TradingView
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to identify companies that have recently seen positive earnings estimate revision activity. This technique has proven to be quite useful. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
With a Zacks Rank #3 (Hold) and a +4.88% Earnings ESP, another earnings beat may be in the cards for DELL when the company reports on February 24th.
Even with last year’s price ascent, DELL trades at a relatively undervalued 9.03 forward P/E when compared to the industry average (23.09). Looking into 2022, the Zacks Consensus Estimate shows analysts are expecting an 8.25% increase in EPS to $8.66. Sales are anticipated to rise by 12.92% to $106.49 billion.
Fair Isaac Corp. is a global developer of software, data management, and analytics products that give businesses the opportunity to automate processes. The company operates in the Americas, Europe, the Middle East, Africa, and Asia. FICO solutions and technologies for Enterprise Data Management allow its clients to increase sales, reduce fraud losses, and manage risk more efficiently. FICO markets its products and services through its direct sales organization, indirect channels, as well as online. Fair Isaac was founded in 1956 and is based out of Bozeman, MT.
A Zacks Rank #2 (Buy) stock, FICO has exceeded earnings estimates in each of the past seven quarters. The software developer recently reported its fiscal Q1 earnings which once again surpassed consensus estimates. Quarterly EPS came in at $3.70, delivering a positive surprise of 8.2% over the $3.42 Zacks Consensus Estimate. FICO has posted a trailing four-quarter average earnings surprise of +18.7%. The stock is up over 20% YTD, easily outperforming the major indices.
Image Source: TradingView
Analysts covering FICO have increased their fiscal 2022 EPS estimates by 1.85% in the past 60 days. The Zacks Consensus Estimate is now $15.97, which would represent growth of 22.19% relative to 2021. FICO’s next earnings report is scheduled for May 4th.
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Inflation and Volatility: Navigating This Whipsaw Market
The major indices opened sharply lower Thursday on the heels of a worse-than-expected Consumer Price Index (CPI) print. U.S inflation continued its drastic ascent in January, with prices spanning a wide range of goods and services surging higher amid supply chain issues and lingering scarcities. The indices were able to pare most of the morning losses by midday.
This morning, the Bureau of Labor Statistics released its monthly CPI data point which showed a 7.5% annual gain, topping the 7.3% rise forecasted by leading economists. The gain represented the swiftest pace for the inflationary measure going back to 1982. The widely followed gauge climbed 0.6% from December, reflecting a broad-based increase that included higher energy and food costs.
Even excluding the more volatile food and energy prices, the core CPI rose 6% in January versus the same time a year ago which also marked a 40-year high.
During corrections, the market has a way of reeling investors back in, only to prove the majority wrong and continue to fall. I can’t count on two hands how many times I saw that the bottom was in during the past two weeks. And while the bottom for this recent market move may have been hit in January, making those types of predictions is a fool’s game. We’ll leave that to the bottom-fishers.
We’re going to stick to the plan and identify leading stocks in this tough environment. There’s a lot of whipsaw going on in this market, and when that’s the case it’s best to be cautious and limit any new trade initiations. The time to become more aggressive is when investments are working and volatility remains calm – that isn’t the case at the moment, as the popular VIX volatility gauge spiked 10% higher this morning.
The stock market is dynamic and things can change quickly, so we must be ready to alter our outlook as more data comes in and things progress. Let’s take a look at two leading stocks that are outperforming the market. Both stocks are components of the Zacks Computer and Technology sector, which ranks in the top 38% of all Zacks Sectors.
Drilling down further, these stocks are contained within the Zacks Computers – IT Services industry group, which is also ranked in the top 38% of all Zacks Ranked Industries. Quantitative research studies have historically illustrated that approximately half of a stock’s future price appreciation is due to its industry grouping. By investing in stocks within the top 50% of all Zacks Ranked Industries, we can dramatically improve our investing success.
Dell Technologies, Inc. (DELL - Free Report)
Dell Technologies develops, markets, and sells information technology solutions and products globally. DELL operates through three segments: Infrastructure Solutions Group (ISG), Client Solutions Group (CSG), and VMware. The company’s ISG segment primarily provides storage solutions, servers, and networking products. The CSG segment offers desktops, workstations, notebooks, displays, and projectors. The VMware segment produces IT solutions for DELL’s diverse client base, offering a cloud-based platform that enables its customers to gain a strategic advantage. Dell Technologies was founded in 1984 and is headquartered in Round Rock, TX.
DELL boasts an impressive history in terms of earnings surprises, surpassing estimates in each quarter for the past three years. The IT provider most recently reported Q3 EPS back in November of $2.37, a +1.72% surprise over the $2.33 consensus estimate. DELL has delivered an average earnings surprise of +17.93% over the past four quarters, aiding the stock’s market-beating 52.39% run during the past year.
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to identify companies that have recently seen positive earnings estimate revision activity. This technique has proven to be quite useful. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
With a Zacks Rank #3 (Hold) and a +4.88% Earnings ESP, another earnings beat may be in the cards for DELL when the company reports on February 24th.
Even with last year’s price ascent, DELL trades at a relatively undervalued 9.03 forward P/E when compared to the industry average (23.09). Looking into 2022, the Zacks Consensus Estimate shows analysts are expecting an 8.25% increase in EPS to $8.66. Sales are anticipated to rise by 12.92% to $106.49 billion.
Fair Isaac Corp. (FICO - Free Report)
Fair Isaac Corp. is a global developer of software, data management, and analytics products that give businesses the opportunity to automate processes. The company operates in the Americas, Europe, the Middle East, Africa, and Asia. FICO solutions and technologies for Enterprise Data Management allow its clients to increase sales, reduce fraud losses, and manage risk more efficiently. FICO markets its products and services through its direct sales organization, indirect channels, as well as online. Fair Isaac was founded in 1956 and is based out of Bozeman, MT.
A Zacks Rank #2 (Buy) stock, FICO has exceeded earnings estimates in each of the past seven quarters. The software developer recently reported its fiscal Q1 earnings which once again surpassed consensus estimates. Quarterly EPS came in at $3.70, delivering a positive surprise of 8.2% over the $3.42 Zacks Consensus Estimate. FICO has posted a trailing four-quarter average earnings surprise of +18.7%. The stock is up over 20% YTD, easily outperforming the major indices.
Analysts covering FICO have increased their fiscal 2022 EPS estimates by 1.85% in the past 60 days. The Zacks Consensus Estimate is now $15.97, which would represent growth of 22.19% relative to 2021. FICO’s next earnings report is scheduled for May 4th.