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Tesla Leads the Way, Doesn't It? Global Week Ahead

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Last week, Zacks listed 386 earnings reports.

In the Global Week Ahead, I see 884 earnings reports (April 26th to April 30th).

Next week (May 3rd to May 8th), shows 1444 reports.

1x, 2x, 3x, if you will.

I am counting across the style spectrum; and including international stocks listed on Zacks reporting system.

The most-packed earnings report days? Wednesday has 226 and Thursday has 333.

As overall reporting numbers rise to a peak, a few large cap stocks caught my eye—

 

  • - Tesla, Cadence Design and NXP Semiconductor report on Monday
  • - Microsoft, Advanced Micro Devices, Google, Texas Instruments and UPS report on Tuesday
  • - Apple, Facebook, Boeing, Qualcomm, Shopify and United Rentals report on Wednesday
  • - Amazon, Twitter, Mastercard, Caterpillar and Western Digital report on Thursday
  • - Abbvie, Exxon Mobil and Weyerhauser report on Friday
     


Next are Reuters’ five world market themes, reordered for equity traders.

(1) The Big FAANG Stocks Report Earnings

Around 86% of U.S. firms have beaten earnings expectations so far and forecasts overall are for +33% Q1 growth.

In coming days, Facebook (FB - Free Report) , Apple (AAPL - Free Report) , Google-parent Alphabet (GOOGL - Free Report)  and Amazon (AMZN - Free Report)  will show how the tech heavyweights are faring.

Apple earnings are seen up some +32%. Tesla meanwhile reports on Tuesday and its revenues are forecast to have grown by +71%, Refinitiv I/B/E/S data shows.

Their performance may be key to how stocks do -- while near record highs, U.S. equities face a thicket of obstacles, from the expected peak in U.S. economic growth to White House plans to nearly double taxes on capital gains for the wealthy.

(2) COVID Has Staged a Comeback

COVID-19 was meant to be in retreat by now but in many countries -- India, Japan, Thailand -- it has staged a comeback.

India in particular was seen as this year's growth leader with a 10%-plus rebound. Those hopes have been sunk by a second wave of the pandemic that has seen daily infections rise to the highest recorded anywhere. The central bank highlighted risks to the economy, with officials noting that "monetary and fiscal policies have already used most of their space.”

The rupee is down 2.7% against the dollar in April, a month when the greenback itself was weak, Indian stocks have logged a third week of losses and bad loan fears are mounting.

The impact will be felt globally, from commodities to consumer goods. Given India is the world's third-largest oil user, crude prices are under pressure. Worryingly, the longer the crisis lasts, the greater the chances that new vaccine-resistant virus mutations will emerge.

(3) On Wednesday, April 28th: Fed Meeting

The Federal Reserve's policy meeting ending April 28th may help markets glean how it might respond to U.S. economic recovery and higher inflation after consumer prices rose by the most in more than 8-1/2 years in March.

Fed chairman Jerome Powell sees inflation “a little higher” this year but remains committed to limiting any overshoot, according to a letter sent to Senator Rick Scott.

Ten-year yields have stabilized and the inflation rebound to 2.6%, well above target, is likely to be short-lived. Still, swaps show that market expectations of future inflation are rising and that means Treasury volatility may not be over yet.

(4) On April 26-27, there is a Bank of Japan (BoJ) Meeting

Japan's flows data on Thursday is a hot item for markets.

February's spike in U.S. Treasury yields was, after all, at least partly attributed to Japanese buyers' absence from the market.

Japan's largest life insurance firms have been reluctant to add to Treasury holdings -- fearing higher U.S. inflation will trigger a repeat of the first quarter's brutal bond selloff and currency volatility. Some plan to sell foreign bonds and buy yen securities.

Japanese investors bought a net 906 billion yen ($8.39 billion) of foreign bonds last week, down 47% from the previous week. A further slowdown in net purchases, not to mention a swing to net selling, has consequences for Treasuries.

At home, too, the Bank of Japan may not welcome insurers' plans if flows strengthen the yen. The BOJ's April 26-27 meeting is expected to deliver a downbeat forecast for inflation.

(5) A Green Party Chancellor of Germany?

It's rare for markets to get excited about German politics. But as chances rise of the Greens becoming a key member of the next government, investors are waking up to election risk in Europe's largest economy.

Annalena Baerbock will be the first Green candidate for chancellor in the 40-year history of the party, which has overtaken the conservative bloc in one poll.

In-fighting and a face mask procurement scandal have hurt the ruling CDU/CSU alliance. The choice of centrist Armin Laschet as their candidate to succeed Angela Merkel as chancellor, over the more popular Bavarian Markus Soeder, may hurt its chances in September's election.

A future government comprising the Greens could see increased spending on climate friendly projects and a push for deeper European integration. It explains why German Bund yields are near seven-week highs.

Zacks #1 Rank (STRONG BUY) Stocks

Let’s look into top-ranked Info Tech stocks on our list.

(1) NVIDIA (NVDA - Free Report) : This is a $594 a share semi chip stock, making for a $369B market cap. I see a Zacks Value score of F, a Zacks Growth score of B, and a Zacks Momentum score of A.

(2) Micron (MU - Free Report) : This is an $84 a share memory chip stock, making for a $95B market cap. I see a Zacks Value score of C, a Zacks Growth score of C, and a Zacks Momentum score of A.

(3) LG Display (LPL - Free Report) : This is a $11.60 a share Computer-Peripheral stock, making for a $8.3B market cap. I see a Zacks Value score of A, a Zacks Growth score of B, and a Zacks Momentum score of C.

The Zacks Value scores (F, C, and A) and the respective share prices ($594, $84 and $11.60) are obviously linked.

Go figure.

Key Global Macro

Focus on the Fed meeting on Wednesday. But big FAANG earnings reports surely dominate the Powell presser.

On Monday, Germany’s IFO indices come out. Business Climate should be 97.7, Current Assessment should be 94.5, and Expectations should be 101.4. Sounds like German business sees the rise in vaccinations improving matters, down the road.

U.S. durable goods orders ex-transports should be up +1.6% y/y in March.

On Tuesday, the Bank of Japan issues its monetary policy statement. This will be a non-event.

The U.S. Case-Shiller Home Price Index for FEB should be up +11.8% y/y. That is a strong showing.

On Wednesday, there is an OPEC meeting.

There is also a U.S. Federal Reserve meeting.

The ECB’s LaGarde will also give a speech.

On Thursday, U.S. core personal consumption expenditures should be up +2.0% for Q1, in a preliminary reading.

U.S. initial jobless claims should be 560K, after 547K last week. Still high.

Japan has a host of macro readings: Tokyo CPI ex-food and energy should be up +0.3% y/y, the country’s unemployment rate should be 2.9%, and industrial production should be up 0% in March. Tepid.

On Friday, the Euro Area’s core CPI should be up +0.9% (y/y) in April.

The Euro Area’s GDP for Q1 should be down -1.9% in a preliminary reading. Again, tepid.

The University of Michigan consumer sentiment index should be 88 in April.

Conclusion

Tesla (TSLA - Free Report) and Elon Musk kick off this big Q1 earnings report week.

The electric vehicle company reports After the Market Closes (AMC) Monday, April 26th.

 

  • - I see a $731 a TSLA share print Friday, April 23rd
  • - That makes for a market cap of $690 billion
  • - The 52-week TSLA share price high is $900
     


Zacks consensus Q1 and annual earnings?
 

  • - For Q1, TSLA consensus looks for $0.79 a share
  • - 2020 earnings were $2.24
  • - 11 or 12 TSLA analysts arrive at $4.30 a share in 2021 and $6.34 in 2022
     


Once again, 1x, 2x, 3x. If you will.

Valuation? I come up with a 2021 P/E ratio of 170 and a 2022 forward P/E of 115.

Either forward valuation is too rich for me.

Align the two lofty TSLA valuations with those from a benchmark.

 

  • - The forward 12M forward P/E valuation of the S&P 500 is 22.3
  • - This forward S&P 500 valuation averaged 17.9 the last five years
     


A -20% pullback can happen -- just to hit an average five-year S&P 500 valuation.

In light of that, what would Tesla shares do?

Writing last Friday, CMC Markets summed it up—

“With a market cap in excess of the entire automotive sector, the Tesla share price has an almost cult-like status among devotees.

“However, questions are now being asked as to whether this sort of valuation can be sustained at a time when the likes of General Motors, Ford and Daimler are starting to ramp up their electric vehicle offerings, and have the ability to scale much quicker.

“Tesla’s share price has held up fairly well so far this quarter, but that appears to have more to do with CEO Elon Musk talking up bitcoin and extolling the virtues of cryptocurrencies as a means of payment, than for its ability to sell cars.”


Happy trading!

John Blank