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The Zacks Analyst Blog Highlights: Roche, Gilead and Bristol Myers
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For Immediate Release
Chicago, IL –October 23, 2018 – 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: Roche Holding AG (RHHBY - Free Report) , Gilead Sciences (GILD - Free Report) and Bristol Myers Squibb (BMY - Free Report) .
Here are highlights from Monday’s Analyst Blog:
Earnings Keep Pouring In: Global Week Ahead
In the Global Week Ahead, Q3 earnings season picks up the pace.
So far, almost 90% of the firms have beaten analysts’ earnings expectations. About 70% have beaten revenue expectations.
This week, 156 S&P 500 firms release earnings. This includes top names like McDonald’s, 3M, Lockheed Martin, Caterpillar, Capital One, Equifax, Boeing, AT&T, UPS, Visa, Microsoft, Ford, Merck, American Airlines, Twitter, Alphabet, Intel and Amazon.
Added to that, below are five big Reuters in London global market themes. These non-U.S. themes likely enter into the stock market, thinking of both investors and traders.
Still, I would focus on U.S. earnings. It’s a more direct line of influence.
(1) Don’t Forget About European Company Earnings
European companies’ Q3 earnings are a key test for a market, which according to EPFR Global, has seen investors pull out almost $5 billion this week. Investors are jumpy about China’s economy, rising costs, trade wars and lackluster Eurozone growth.
The coming week sees Europe’s most hated sectors — autos and banks — reporting earnings. French carmakers Renault and Peugeot will report figures. Coming after Daimler’s profit warning and negative outlooks from tire maker Michelin and car dealership Inchcape, these will be watched for signs of strain from weaker car demand and higher trade tariffs.
Results from UBS, Barclays, Nordea and the struggling Deutsche Bank will give a read on how bad things are for the banking sector.
Analysts have slashed earnings forecasts for carmakers consistently over the past six months – and have become increasingly pessimistic on banks’ earnings since March. Shares in both sectors are in bear territory, having fallen around 20 percent this year.
Earnings for MSCI Europe companies are seen growing more in 2019 than 2018, I/B/E/S Refinitiv data shows. And while earnings expectations were relatively stable in 2017, pessimism over Europe this year has led analysts to steadily downgrade their forecasts.
(2) In Turn, Watch the ECB Meeting This Week
Stock market turmoil, conflict over a contentious Italian budget, high oil prices, sputtering economic growth — not quite the backdrop a central bank wants to see three months before its it ends its stimulus program. But that is exactly what the European Central Bank (ECB) faces when it meets on Thursday.
For now, the heightened risks to the growth outlook are not expected to derail its plans to end QE by year-end, but the bank could downgrade the growth risk assessment in its policy statement.
That would be a dovish signal and one likely to cheer Eurozone bond markets, which have been guided already to not expect a rise in the ECB’s record low rates until well into 2019.
No wonder, then, that the gap between short-dated bond yields in the United States and Germany are at their widest in 30 years, while 10-year euro area bond yields (with the exception of Italy) have been largely insulated from the recent spike U.S. Treasury yields.
(3) Then, Watch China’s Currency
The real possibility of the yuan weakening to the 7-per-dollar mark last seen in 2008, hangs over China, emerging markets and global equities.
The thinking so far has been that the risk of capital outflows, along the lines of what happened in 2016, would dissuade Beijing from allowing such a slide in the currency. But more recently, weak benchmark yuan/dollar fixings, a drop in the trade-weighted yuan index to below 2017 lows, and a flurry of comments and measures from policymakers reveal both a sense of panic and determination to prop up the economy.
With third quarter economic growth slowing to crisis-era lows, no let-up in Washington’s trade rhetoric and a stock market that’s lost 28 percent since February, China has been forced to ease monetary conditions and is cajoling banks to lend to small firms. A weaker yuan would complement those stimulus efforts.
Yet a 7-per-dollar yuan would erode faith in China’s stability and possibly provoke more U.S. ire. And coming on top of rising U.S. yields, Brexit and Italian politics, it would add another layer of worry to world markets — the last thing investors want to see.
(4) Keep an Eye on the U.S. Housing Market
U.S. housing is on the radar screen. It is looking weak of late. This store of much of Americans’ wealth has taken a leg down of late, against the backdrop of the Fed’s signals of another rate hike this year and more in 2019. With rising borrowing costs and prices outstripping wage growth, the market has been a weak spot in the robust economy.
So new homes sales data, due on Oct. 24th, will be closely scrutinized.
U.S. homebuilding dropped more than expected in September, while mortgage activity was knocked in the latest week to its lowest since 2014.
The housing market has also been hobbled by an acute shortage of properties for sale and higher home prices. Residential investment contracted in the first half of the year and the latest data supports economists’ expectations that housing remained a drag on economic growth in the third quarter.
(5) Does Italy Get a Junk Bond Rating from S&P?
On Monday, Moody’s left Italy’s bond rating a cut above junk. S&P Global could cut Italy’s credit rating to within a notch of ‘junk’ too — the sub-investment grade category below BBB-/Baa1.
This level is usually populated by the weaker emerging economies.
The downgrades are premised on Italian plans to boost spending to boost growth and the impact on a debt ratio that’s already one of the world’s worst. They would be the culmination of a nightmare month which has seen Italian borrowing costs shoot to 4-1/2-year highs as the European Union labeled its draft budget an “unprecedented” breach of fiscal rules.
But Italy’s debt is already trading with yields that suggest investors are pricing it as junk already. So the bigger risk than a one-notch ratings downgrade is that one or both of the agencies set the outlook on Italy’s rating to Negative, instead of Stable. That would suggest a fall into junk is a real possibility in the near future.
Loss of investment grade carries a high cost — hundreds of billions of euros in fund flows and possibly even a fresh Eurozone crisis.
Top Zacks Rank Stocks—
Let’s look into Large Cap Pharma this week.
The Zacks Industry Rank for this group is 47 out of 265 (top 18%) for the Drug companies, and 82 out 265 (top 32%) for the Biotechs.
I noted three big stocks on the Zacks #1 Rank (STRONG BUY) screen.
(1) Roche Holding AG: This is a $208B market cap French drug stock. Shares price at $30. The Zacks VGM score is A.
There is no share price momentum to speak of over the last three months. A bottom was put in here in June.
Roche Holding AG is a research-based, product-focused organization dedicated to the discovery and early clinical development of pharmaceuticals and drugs, fine chemicals and vitamins, fragrances and flavors, diagnostic equipment and liquid crystals.
The company distributes its products throughout Europe, the United States, Asia and Latin America.
(2) Gilead Sciences: This is a $95B market cap U.S. Biotech company. The Zacks VGM score is a low D, due to an F in Growth.
Again, I note a flat share price chart the last three months. A bottom was put in around May.
Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. The company strives to care for people with life-threatening illnesses around the world.
Gilead's portfolio of products and pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer, inflammatory and respiratory diseases, and cardiovascular conditions.
(3) Bristol Myers Squibb: This is an $88B U.K. drug company. The Zacks VGM score is A.
Bristol-Myers Squibb is a differentiated company, led by their unique BioPharma strategy that leverages the reach and resources of a major pharma company paired with the entrepreneurial spirit and agility of a biotech firm.
Now, look across all three names. Note anything?
The European firms rate a Zacks VGM score of A. The U.S. firm is rated a D. That is a broad share valuation difference you can likely exploit.
When does this 18-month value trap become an opportunity? That’s the real question.
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 http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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The Zacks Analyst Blog Highlights: Roche, Gilead and Bristol Myers
For Immediate Release
Chicago, IL –October 23, 2018 – 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: Roche Holding AG (RHHBY - Free Report) , Gilead Sciences (GILD - Free Report) and Bristol Myers Squibb (BMY - Free Report) .
Here are highlights from Monday’s Analyst Blog:
Earnings Keep Pouring In: Global Week Ahead
In the Global Week Ahead, Q3 earnings season picks up the pace.
So far, almost 90% of the firms have beaten analysts’ earnings expectations. About 70% have beaten revenue expectations.
This week, 156 S&P 500 firms release earnings. This includes top names like McDonald’s, 3M, Lockheed Martin, Caterpillar, Capital One, Equifax, Boeing, AT&T, UPS, Visa, Microsoft, Ford, Merck, American Airlines, Twitter, Alphabet, Intel and Amazon.
Added to that, below are five big Reuters in London global market themes. These non-U.S. themes likely enter into the stock market, thinking of both investors and traders.
Still, I would focus on U.S. earnings. It’s a more direct line of influence.
(1) Don’t Forget About European Company Earnings
European companies’ Q3 earnings are a key test for a market, which according to EPFR Global, has seen investors pull out almost $5 billion this week. Investors are jumpy about China’s economy, rising costs, trade wars and lackluster Eurozone growth.
The coming week sees Europe’s most hated sectors — autos and banks — reporting earnings. French carmakers Renault and Peugeot will report figures. Coming after Daimler’s profit warning and negative outlooks from tire maker Michelin and car dealership Inchcape, these will be watched for signs of strain from weaker car demand and higher trade tariffs.
Results from UBS, Barclays, Nordea and the struggling Deutsche Bank will give a read on how bad things are for the banking sector.
Analysts have slashed earnings forecasts for carmakers consistently over the past six months – and have become increasingly pessimistic on banks’ earnings since March. Shares in both sectors are in bear territory, having fallen around 20 percent this year.
Earnings for MSCI Europe companies are seen growing more in 2019 than 2018, I/B/E/S Refinitiv data shows. And while earnings expectations were relatively stable in 2017, pessimism over Europe this year has led analysts to steadily downgrade their forecasts.
(2) In Turn, Watch the ECB Meeting This Week
Stock market turmoil, conflict over a contentious Italian budget, high oil prices, sputtering economic growth — not quite the backdrop a central bank wants to see three months before its it ends its stimulus program. But that is exactly what the European Central Bank (ECB) faces when it meets on Thursday.
For now, the heightened risks to the growth outlook are not expected to derail its plans to end QE by year-end, but the bank could downgrade the growth risk assessment in its policy statement.
That would be a dovish signal and one likely to cheer Eurozone bond markets, which have been guided already to not expect a rise in the ECB’s record low rates until well into 2019.
No wonder, then, that the gap between short-dated bond yields in the United States and Germany are at their widest in 30 years, while 10-year euro area bond yields (with the exception of Italy) have been largely insulated from the recent spike U.S. Treasury yields.
(3) Then, Watch China’s Currency
The real possibility of the yuan weakening to the 7-per-dollar mark last seen in 2008, hangs over China, emerging markets and global equities.
The thinking so far has been that the risk of capital outflows, along the lines of what happened in 2016, would dissuade Beijing from allowing such a slide in the currency. But more recently, weak benchmark yuan/dollar fixings, a drop in the trade-weighted yuan index to below 2017 lows, and a flurry of comments and measures from policymakers reveal both a sense of panic and determination to prop up the economy.
With third quarter economic growth slowing to crisis-era lows, no let-up in Washington’s trade rhetoric and a stock market that’s lost 28 percent since February, China has been forced to ease monetary conditions and is cajoling banks to lend to small firms. A weaker yuan would complement those stimulus efforts.
Yet a 7-per-dollar yuan would erode faith in China’s stability and possibly provoke more U.S. ire. And coming on top of rising U.S. yields, Brexit and Italian politics, it would add another layer of worry to world markets — the last thing investors want to see.
(4) Keep an Eye on the U.S. Housing Market
U.S. housing is on the radar screen. It is looking weak of late.
This store of much of Americans’ wealth has taken a leg down of late, against the backdrop of the Fed’s signals of another rate hike this year and more in 2019. With rising borrowing costs and prices outstripping wage growth, the market has been a weak spot in the robust economy.
So new homes sales data, due on Oct. 24th, will be closely scrutinized.
U.S. homebuilding dropped more than expected in September, while mortgage activity was knocked in the latest week to its lowest since 2014.
The housing market has also been hobbled by an acute shortage of properties for sale and higher home prices. Residential investment contracted in the first half of the year and the latest data supports economists’ expectations that housing remained a drag on economic growth in the third quarter.
(5) Does Italy Get a Junk Bond Rating from S&P?
On Monday, Moody’s left Italy’s bond rating a cut above junk. S&P Global could cut Italy’s credit rating to within a notch of ‘junk’ too — the sub-investment grade category below BBB-/Baa1.
This level is usually populated by the weaker emerging economies.
The downgrades are premised on Italian plans to boost spending to boost growth and the impact on a debt ratio that’s already one of the world’s worst. They would be the culmination of a nightmare month which has seen Italian borrowing costs shoot to 4-1/2-year highs as the European Union labeled its draft budget an “unprecedented” breach of fiscal rules.
But Italy’s debt is already trading with yields that suggest investors are pricing it as junk already. So the bigger risk than a one-notch ratings downgrade is that one or both of the agencies set the outlook on Italy’s rating to Negative, instead of Stable. That would suggest a fall into junk is a real possibility in the near future.
Loss of investment grade carries a high cost — hundreds of billions of euros in fund flows and possibly even a fresh Eurozone crisis.
Top Zacks Rank Stocks—
Let’s look into Large Cap Pharma this week.
The Zacks Industry Rank for this group is 47 out of 265 (top 18%) for the Drug companies, and 82 out 265 (top 32%) for the Biotechs.
I noted three big stocks on the Zacks #1 Rank (STRONG BUY) screen.
(1) Roche Holding AG: This is a $208B market cap French drug stock. Shares price at $30. The Zacks VGM score is A.
There is no share price momentum to speak of over the last three months. A bottom was put in here in June.
Roche Holding AG is a research-based, product-focused organization dedicated to the discovery and early clinical development of pharmaceuticals and drugs, fine chemicals and vitamins, fragrances and flavors, diagnostic equipment and liquid crystals.
The company distributes its products throughout Europe, the United States, Asia and Latin America.
(2) Gilead Sciences: This is a $95B market cap U.S. Biotech company. The Zacks VGM score is a low D, due to an F in Growth.
Again, I note a flat share price chart the last three months. A bottom was put in around May.
Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. The company strives to care for people with life-threatening illnesses around the world.
Gilead's portfolio of products and pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer, inflammatory and respiratory diseases, and cardiovascular conditions.
(3) Bristol Myers Squibb: This is an $88B U.K. drug company. The Zacks VGM score is A.
Bristol-Myers Squibb is a differentiated company, led by their unique BioPharma strategy that leverages the reach and resources of a major pharma company paired with the entrepreneurial spirit and agility of a biotech firm.
Now, look across all three names. Note anything?
The European firms rate a Zacks VGM score of A. The U.S. firm is rated a D. That is a broad share valuation difference you can likely exploit.
When does this 18-month value trap become an opportunity? That’s the real question.
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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 http://www.zacks.com/performance for information about the performance numbers displayed in this press release.