For Immediate Release
Chicago, IL – Jan 30, 2018 – Zacks Equity Research highlights Charles Schwab (SCHW - Free Report) as the Bull of the Day, El Paso Energy as the Bear of the Day. In addition, Zacks Equity Research provides analysis on BP plc (BP - Free Report) , Asahi Kasei Corp. (AHKSY - Free Report) and H Lundbeck A/S (HLUYY - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Unless you’ve been living under a rock for the last several months, you know that this market has been rocking and rolling. It’s been a rising tide that has helped to raise all ships. Across the board stocks are on the move and valuations are stretching. That’s great for your average equity, but even better when you’re talking about a company that makes its money directly from commissions and investment fees.
Today’s Bull of the Day is in the online retail investment business. I’m talking about Zacks Rank #1 (Strong Buy) Charles Schwab. The Charles Schwab Corporation, through its subsidiaries, provides wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. The company operates through two segments, Investor Services and Advisor Services.
In an industry that ranks in the Top 12% of our Zacks Industry Rank, Schwab is a Zacks Rank #1 (Strong Buy) because of a string of positive earnings revisions from analysts. Over the last thirty days, eight analysts have increased their estimates for the current year while nine have done so for the next year. This bullish behavior has pushed up our Zacks Consensus Estimate from $1.95 to $2.39 for the current year, while next year’s estimates have skyrocketed from $2.26 to $2.80.
Obviously, this has helped out the stock price quite a bit. The stock has been locked in an uptrend since bottoming out last September near $38. An oversold commodity channel index reversed and crossed over the zero-line giving a “Buy” signal as the stock jumped its 50-day moving average. A little reversion to the mean brought shares back within earshot of the average in mid-November. A breakout of the $46 level led to new highs. Recently the stock hit over $56 as an overbought CCI needed some cooling off. Since then the stock has come back to $54 as the CCI is hitting that zero line. I’m looking for a bounce here and another run at the 52-week highs.
Bear of the Day:
Don’t look now but interest rates are on the rise. The yield on the 10-Year Treasury Note topped 2.7% during yesterday’s session for the first time since April 2014. Also, with our Federal Reserve beginning to inch the overnight rate higher, many feel rates have nowhere to go but up. That’s not good news for industries with interest rate sensitivity. One of the most sensitive industries in the market is utilities. As rates rise, their yields don’t catch up quick enough to save them from downside risk.
Today’s Bear of the Day is one of those utility stocks. I’m talking about Zacks Rank #5 (Strong Sell) El Paso Energy. El Paso Electric Company, a public utility company, engages in the generation, transmission, and distribution of electricity in west Texas and southern New Mexico. It generates electricity through nuclear fuel, natural gas, and coal facilities, as well as solar photovoltaic panels and wind turbines.
The company owns or has ownership interests in various electrical generating facilities with a net dependable generating capability of approximately 2,080 megawatts; four 345 kilovolt (kV) transmission lines in New Mexico and Arizona; and three 500 kV lines in Arizona. It distributes electricity to retail customers principally in El Paso, Texas; and Las Cruces, New Mexico. The company serves approximately 411,100 residential, commercial, industrial, public authority, and wholesale customers.
The reason for the unfavorable Zacks Rank is an analyst drop their current year estimate from $2.55 down to $2.50. This was in the wake of El Paso’s last earnings report where the company reported EPS of $1.47 versus expectations calling for $1.58. The company is set to report earnings again on February 27th before the bell, with analysts looking for 22 cents for the quarter.
Goldilocks Bulls vs. Valuation Bears: Global Week Ahead
In the Global Week Ahead, for individual stocks earnings releases pick up. 120 S&P 500 firms report.
These include Pfizer, Lockheed Martin, McDonald’s, Eli Lilly, Boeing, MetLife, AT&T, Facebook, Microsoft, eBay, Time Warner, UPS, MasterCard, Visa, Alphabet, Amazon, Mattel, Apple and Merck, among many others.
Now, let’s visit Reuter’s latest Five World Market Themes. We have an event-filled week ahead of us, inside and outside the USA.
(1) Goldilocks World Economy for Bulls, High Stock Valuations for Bears
This is a ‘Goldilocks’ period for world markets. Everything is just right — the global economy is booming, company profits are rising, the central bank stimulus taps are still open and U.S. tax cuts are about to kick in. Wall Street and world stocks are hitting record highs on a near-daily basis.
But the porridge may be getting too hot and the bears are circling. Equity fund inflows last week hit a record $33.2 billion, according to Bank of America-Merrill Lynch (BAML). Investor bullishness is reaching extreme levels.
U.S. stocks are way more expensive than their European and Japanese peers, on a price/earnings ratio measure, and the most expensive they’ve been since 2002. The warning signs are flashing red.
Even the bulls would agree that a correction is due. Will the bears get it started this week?
(2) Manufacturing PMI Blizzard Hits This Week
However, this week, a blizzard of global PMI and inflation data should show just how hot the temperature of the world economy is right now.
Asia’s data also includes Korean exports and inflation in Mainland China PMIs. These could give us a good idea just how long the export momentum can be sustained against the backdrop of a U.S. dollar that keeps getting cheaper.
Asian exports have so far been driving overall growth, owing to a synchronized revival in global demand, a healthy upturn in the tech cycle, and a recovery in commodity prices.
In Europe, an added big set of data to watch will be German GDP and inflation figures. If these remain strong, it could push the European Central Bank another step closer to ending its mass stimulus program.
(3) President Trump’s “State of the Union” Address Tuesday Night
On Tuesday, President Trump is due to give his first formal “State of the Union” address. Markets will be listening very carefully, having seen his tax cut plans fuel a renewed surge in stocks this year. But trade and currency war nerves have thumped the U.S. dollar.
Historically, the stock market reaction has been mixed to such speeches. On average the S&P 500 has dipped 0.05% the day after, if you go back to 1965 when Lyndon Johnson gave the first televised State of the Union address.
(4) Watch for Russia Sanctions, Ruble and Debt Rating
Investors are anxiously awaiting U.S. Treasury publications due out this week. These could detail ways of expanding sanctions against Russia, possibly to include Russian government debt.
Foreign investors currently hold around 32% of ruble-denominated Russian treasury bonds, lured by their lucrative yields and the fact the economy is picking up in line with oil prices.
Last Thursday, ratings agency Moody’s raised Russia’s sovereign outlook to positive, citing growing evidence of institutional strength and economic and fiscal resilience. The ruble has rallied to near nine-month highs. And Moscow shares are hitting all-time peaks.
But Russian assets would be vulnerable if U.S. sanctions on Russian ruble debt seem likely. Conversely, if the U.S. Treasury reports are a non-event, a relief rally could follow.
(5) Will Debt and Currency Markets Miss Janet Yellen?
Are we in a new global currency war, or a trade war, or both?
On Wednesday, Janet Yellen holds her final meeting as head of the Federal Reserve, with the U.S. dollar on its weakest run since 2010-2011 when the Fed was printing money hand over fist.
Now, though, the United States is firing a series of volleys over world trade agreements to explicitly protect U.S. industries – just as the Trump administration has been promising over its first year in power.
Tuesday’s State of Union speech is expected to put trade at the top of this year’s agenda. Last week, the administration also slapped 30% tariffs on washing machines and solar panels to show it was prepared to put words into action.
What’s more, there’s widespread concern in Europe the tax reforms themselves breach world trade rules on fair competition between European multinationals and U.S. counterparts. And speculation is rife that Intellectual Property (IP) and steel investigations are now in and will form the basis for more action.
Yet the biggest market mover last week was Treasury Secretary Mnuchin cheerleading the dollar’s already accelerating decline, implying to the foreign exchanges at least that the U.S. was happy to use the currency to add pressure on its overseas trading partners. The euro, sterling, yen and Yuan all surged.
Yellen might be quietly happy she’s handing it over to successor Jerome Powell.
Top Zacks #1 Rank (STRONG BUY) Stocks—
With valuations so high in the USA, I would keep my focus on stocks outside the USA. Here are 3 I like:
BP plc: Ah yes, that $144 billion market cap oil & gas behemoth. With oil prices breaking and holding $60 a barrel, the stock is on the move. And the long-term Zacks VGM score is A.
Asahi Kasei Corp.: This is a little-known Japanese diversified chemical company. Yet, it’s stock is on a momentum roll, along with a lot of other multi-national chemical stocks. The long-term Zacks VGM score is still A, too. So more upside looks to be in store.
H Lundbeck A/S: This is a $10 billion in market cap European (Danish) large-cap pharma name. You may not know it. H Lundbeck’s products are targeted at disorders like depression and anxiety, schizophrenia, insomnia, Huntington's, epilepsies, Alzheimer's and Parkinson's diseases. The long-term Zacks VGM score is A.
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
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