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S&P 500 Bumping into Resistance: 3 Stocks to Buy for a Breakout
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SPY, the popular S&P 500 ETF currently sits below a clear level of resistance, which has been tested five times in last year. The ETF is also above both its 50-day EMA and 200-day EMA (Exponential Moving Average). If (SPY - Free Report) can trade and hold above this downtrend it may be a strong signal that the market is on the verge of a new bull market.
If the market does breakout, one place to invest will be stocks with improving earnings. Utilizing the Zacks Rank, we can identify stocks with earnings expectations being revised higher, improving our odds of buying market-beating stocks. Alternatively, even if the market doesn’t breakout, stocks with upward earnings momentum should provide some downside risk protection.
Technical Analysis
Technical analysis is a valuable tool for investors, providing them with the ability to identify entry and exit points for improved risk-reward outcomes. While it may not have the ability to predict the future, it remains one of many indications for investors to consider.
The 50-day EMA is still below the 200-day EMA. Technical traders often use the 50/200 EMA crossover as a filter for the long-term trend of the market. With the 50-day still below the 200-day EMA, we may still consider the market in a downward trend. However, if price does trade above this breakout level, it may very well initiate the EMA crossover signal.
Image Source: Zacks Investment Research
Nucor Corporation
Nucor Corporation (NUE - Free Report) is a manufacturer and seller of steel and steel products. Nucor’s steel mills produce specialty steel products including hot rolled, cold rolled, galvanized sheet steel, and beam blanks among many others. More recently, Nucor is experiencing strong growth in the non-residential construction and the heavy equipment market. Nucor has been expanding its production capacity through strategic acquisitions, bringing the total facilities up to 123 in Canada and the United States.
Nucor stock has been on a tear over the last two years, up 248% over that period, trouncing the broad market, and significantly outperforming the Steel-Producers industry average. According to Zacks estimates, it looks like this rally could be set to continue.
Image Source: Zacks Investment Research
NUE currently sports a Zacks Rank #1 (Strong Buy), indicating a strong trend higher in earnings revisions. Interestingly, the steel market and Nucor’s earnings expectations are not particularly enticing for the coming quarter, as sales and earnings are projected to shrink -26% and -53% respectively, but FY expectations are beginning to turn in a big way.
While the current quarter earnings expectations have been revised lower over the last 90 days, the current year has seen the opposite. FY23 earnings have been revised from $11.01 per share 90 days ago to $12.96 today. And they have been revised higher over every time frame.
Image Source: Zacks Investment Research
Further boosting the stock, is Nucor’s buyback program, which has purchased 3.1 million shares over the last quarter and 20.6 million over the last year. NUE has returned $3.3 billion to shareholders through repurchases and dividends over the last year. NUE stock currently yields a 1.2% dividend.
Nucor has a 1 year forward P/E of 13.4x, above the industries average of 9.5x, and above its ten-year median of 10.5x.
Phillip Morris International
Philip Morris International (PM - Free Report) is a manufacturer and seller of cigarettes, tobacco and nicotine related products outside of the US, in 180 countries. In 2008 the company was spun off from Altria Group (MO - Free Report) , although Philip Morris US still functions as a subsidiary of Altria Group. Additionally, PM shares a licensing agreement with MO for the sale of IQOS (non-combustible tobacco product) in the United States.
The tobacco and now smoke free giant has outperformed the industry and the broad market over the last year. This outperformance is due in part to PM’s strong pricing power and its successful shift to smoke free products. Notably, smoke free products, also referred to as RRP (reduced risk products), sales have jumped 12% over the last quarter, and now make up 30% of total revenue.
Image Source: Zacks Investment Research
Philip Morris currently boasts a Zacks Rank #1 (Strong Buy) and has a strong history of upside earnings surprises. Earnings estimate revision on the face look a bit mixed, but over the next year are being upgraded. Current quarter expectations have been revised just slightly lower from $1.33 per share to $1.29 per share over the last 90 days, but next quarter estimates are being revised higher. Additionally, next year’s estimates have seen more significant revisions, up to $5.91 per share vs $5.65 90 days ago.
Image Source: Zacks Investment Research
Philip Morris has a one year forward P/E of 17.6x, just below the S&P’s average of 18.2x, and above its five-year median of 15x. PM stock also offers a very nice dividend payment, yielding 4.9%.
Cleveland-Cliffs
Cleveland-Cliffs (CLF - Free Report) , formerly Cliffs Natural Resources, is another Zacks Rank #1 (Strong Buy). CLF is the largest producer of steel pellets in North America, and largest producer of flat rolled steel in its region. CLF primarily sells products to integrated steel companies in Canada and the United States, and owns mines in Minnesota and Michigan.
Cleveland-Cliff earnings estimates have seen some very interesting trends in revisions and should be looked at closely in the table below. Current quarter earnings have been mostly revised lower over the last 90 days, which of course isn’t encouraging. But next quarter, current year, and next year earnings have all been revised significantly higher over the last 30 days. Next quarter, you can see was first revised lower from $0.37 to just $0.06 per share, but was then higher up to $0.25. You can see the same trend, a revision lower 60 days ago followed by revisions higher 30 and 7 days ago, in current year and next year. An interesting, and promising development for the steel producer.
Image Source: Zacks Investment Research
CLF currently has a one year forward P/E of 10x, above its 5-year median of 6x, and below its Mining sub-industry of 12x. CLF stock has had a volatile last five years, oscillating between strong outperformance, and deep underperformance against the broad market, somewhat typical of commodities companies who experience strong cyclical tendencies. Based on Zacks figures, it seems likely that the recent period of outperformance may continue.
Image Source: Zacks Investment Research
Conclusion
The broad market is at a precipice. Either it breaks out above this technical pattern or reverses lower and shakes all the newfound market bulls. While these three stocks should perform well in a new bull market, thanks to Zacks analysis, they will likely also perform well if the market remains shaky. Zacks earnings revisions are a strong indication of individual stocks with potential to outperform the market.
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S&P 500 Bumping into Resistance: 3 Stocks to Buy for a Breakout
SPY, the popular S&P 500 ETF currently sits below a clear level of resistance, which has been tested five times in last year. The ETF is also above both its 50-day EMA and 200-day EMA (Exponential Moving Average). If (SPY - Free Report) can trade and hold above this downtrend it may be a strong signal that the market is on the verge of a new bull market.
If the market does breakout, one place to invest will be stocks with improving earnings. Utilizing the Zacks Rank, we can identify stocks with earnings expectations being revised higher, improving our odds of buying market-beating stocks. Alternatively, even if the market doesn’t breakout, stocks with upward earnings momentum should provide some downside risk protection.
Technical Analysis
Technical analysis is a valuable tool for investors, providing them with the ability to identify entry and exit points for improved risk-reward outcomes. While it may not have the ability to predict the future, it remains one of many indications for investors to consider.
The 50-day EMA is still below the 200-day EMA. Technical traders often use the 50/200 EMA crossover as a filter for the long-term trend of the market. With the 50-day still below the 200-day EMA, we may still consider the market in a downward trend. However, if price does trade above this breakout level, it may very well initiate the EMA crossover signal.
Image Source: Zacks Investment Research
Nucor Corporation
Nucor Corporation (NUE - Free Report) is a manufacturer and seller of steel and steel products. Nucor’s steel mills produce specialty steel products including hot rolled, cold rolled, galvanized sheet steel, and beam blanks among many others. More recently, Nucor is experiencing strong growth in the non-residential construction and the heavy equipment market. Nucor has been expanding its production capacity through strategic acquisitions, bringing the total facilities up to 123 in Canada and the United States.
Nucor stock has been on a tear over the last two years, up 248% over that period, trouncing the broad market, and significantly outperforming the Steel-Producers industry average. According to Zacks estimates, it looks like this rally could be set to continue.
Image Source: Zacks Investment Research
NUE currently sports a Zacks Rank #1 (Strong Buy), indicating a strong trend higher in earnings revisions. Interestingly, the steel market and Nucor’s earnings expectations are not particularly enticing for the coming quarter, as sales and earnings are projected to shrink -26% and -53% respectively, but FY expectations are beginning to turn in a big way.
While the current quarter earnings expectations have been revised lower over the last 90 days, the current year has seen the opposite. FY23 earnings have been revised from $11.01 per share 90 days ago to $12.96 today. And they have been revised higher over every time frame.
Image Source: Zacks Investment Research
Further boosting the stock, is Nucor’s buyback program, which has purchased 3.1 million shares over the last quarter and 20.6 million over the last year. NUE has returned $3.3 billion to shareholders through repurchases and dividends over the last year. NUE stock currently yields a 1.2% dividend.
Nucor has a 1 year forward P/E of 13.4x, above the industries average of 9.5x, and above its ten-year median of 10.5x.
Phillip Morris International
Philip Morris International (PM - Free Report) is a manufacturer and seller of cigarettes, tobacco and nicotine related products outside of the US, in 180 countries. In 2008 the company was spun off from Altria Group (MO - Free Report) , although Philip Morris US still functions as a subsidiary of Altria Group. Additionally, PM shares a licensing agreement with MO for the sale of IQOS (non-combustible tobacco product) in the United States.
The tobacco and now smoke free giant has outperformed the industry and the broad market over the last year. This outperformance is due in part to PM’s strong pricing power and its successful shift to smoke free products. Notably, smoke free products, also referred to as RRP (reduced risk products), sales have jumped 12% over the last quarter, and now make up 30% of total revenue.
Image Source: Zacks Investment Research
Philip Morris currently boasts a Zacks Rank #1 (Strong Buy) and has a strong history of upside earnings surprises. Earnings estimate revision on the face look a bit mixed, but over the next year are being upgraded. Current quarter expectations have been revised just slightly lower from $1.33 per share to $1.29 per share over the last 90 days, but next quarter estimates are being revised higher. Additionally, next year’s estimates have seen more significant revisions, up to $5.91 per share vs $5.65 90 days ago.
Image Source: Zacks Investment Research
Philip Morris has a one year forward P/E of 17.6x, just below the S&P’s average of 18.2x, and above its five-year median of 15x. PM stock also offers a very nice dividend payment, yielding 4.9%.
Cleveland-Cliffs
Cleveland-Cliffs (CLF - Free Report) , formerly Cliffs Natural Resources, is another Zacks Rank #1 (Strong Buy). CLF is the largest producer of steel pellets in North America, and largest producer of flat rolled steel in its region. CLF primarily sells products to integrated steel companies in Canada and the United States, and owns mines in Minnesota and Michigan.
Cleveland-Cliff earnings estimates have seen some very interesting trends in revisions and should be looked at closely in the table below. Current quarter earnings have been mostly revised lower over the last 90 days, which of course isn’t encouraging. But next quarter, current year, and next year earnings have all been revised significantly higher over the last 30 days. Next quarter, you can see was first revised lower from $0.37 to just $0.06 per share, but was then higher up to $0.25. You can see the same trend, a revision lower 60 days ago followed by revisions higher 30 and 7 days ago, in current year and next year. An interesting, and promising development for the steel producer.
Image Source: Zacks Investment Research
CLF currently has a one year forward P/E of 10x, above its 5-year median of 6x, and below its Mining sub-industry of 12x. CLF stock has had a volatile last five years, oscillating between strong outperformance, and deep underperformance against the broad market, somewhat typical of commodities companies who experience strong cyclical tendencies. Based on Zacks figures, it seems likely that the recent period of outperformance may continue.
Image Source: Zacks Investment Research
Conclusion
The broad market is at a precipice. Either it breaks out above this technical pattern or reverses lower and shakes all the newfound market bulls. While these three stocks should perform well in a new bull market, thanks to Zacks analysis, they will likely also perform well if the market remains shaky. Zacks earnings revisions are a strong indication of individual stocks with potential to outperform the market.