The S&P 500 is near correction territory and the Nasdaq is down around 15% from its records. The selling has been rough. Luckily, the benchmark continued to hover right near its 10% decline since the start of the week, while the tech-heavy index had traded mostly sideways against Monday’s lows, until Friday's late-afternoon surge.
Both indexes are currently trading beneath their 200-day moving averages for the first time since the initial covid selloff. And the downturn to start 2022 has hit nearly every corner of the market. Yet, it appears the bulls are attempting to make a stand since the selloff has already recalibrated valuations and wiped away nearly two years’ worth of gains for some growth stocks.
There could be more volatility and selling. And Wall Street is laser-focused on the Fed’s rate timeline and increasingly worried about the size of future hikes. Still, the 10-year U.S. Treasury sits at 1.77%, which is below its late-2019 levels and well within the 1.5% to 3% range it floated between during the last decade. And rates are extremely low by historical standards.
The higher rates do negatively impact companies, especially growth-focused firms. But interest rates will have to climb a lot higher before they make stocks broadly unappealing.
Along with relatively accommodating rates, the outlook for S&P 500 revenue, margins, and earnings are strong for both 2022 and 2023 (also read: The Outlook for Tech Stocks in a Rising Rate Environment).
Some investors might want to remain on the sidelines with all of the uncertainty and inflation. For those who decide to stay in the markets and hunt for stocks, it’s perhaps best to find some dividend-paying names, with solid valuations outside of technology…
Cummins CMI Q4 Results on Thursday, February 3
Cummins manufactures engines of all shapes and sizes from diesel to electric. CMI also makes air handling systems, electric power generation systems, batteries, electrified power systems, hydrogen generation, and other power solutions. Some investors have started to focus on the American manufacturer’s ability to expand within the larger cleaner energy future.
CMI has gained traction in hydrogen fuel cell tech. Cummins also announced in Q3 its plan to roll out a 15-liter natural gas engine for heavy-duty trucks, which is part of its broader clean energy push. The firm is focused on new powertrains including “advanced diesel, natural gas, hydrogen engines, hybrids, battery electric, and fuel cells along with an increased use of low carbon fuels and renewable electricity and related infrastructure.”
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Zacks estimates call for Cummins’ FY21 revenue to jump 21% to $24 billion to help it climb above its pre-covid total in FY19. The firm’s sales are expected to pop another 8% higher in 2022. Meanwhile, its adjusted EPS are projected to climb 26% and 23%, respectively, over this stretch. CMI’s mixed earnings revisions help it land a Zacks Rank #3 (Hold) at the moment next to its “A” grade for Value and “B” for Growth in our Style Scores system.
CMI shares are up 50% in the last five years, even though it’s down 8% in the trailing 12 months. At $220 per share, Cummins trades 27% beneath its current Zacks consensus price target of $278 a share. The downturn and its solid earnings outlook have CMI trading at a nearly 40% discount to its own year-long highs at 11.9X forward 12-month earnings. And it comes in well below its median over the past five years.
Investors should also be happy to know Cummins executives in December announced a new share repurchase plan of up to $2 billion after it completes its 2019 program, which was also for $2 billion. The company has boosted its dividend payout for over ten years in a row. And CMI’s 2.6% dividend yield doubles its industry’s average and tops the 30-year U.S. Treasury’s 2.2%.
Exxon Mobil XOM Q4 Results on Tuesday, February 1
Exxon Mobil is an oil and gas behemoth that operates a well-rounded industry portfolio. The company has benefitted from rising oil prices and a huge rebound in energy demand as the global economy continues to bounce back. Exxon in early December said it projects to double its earnings over the next six years, compared to its 2019 levels. XOM, like most of the industry, is slowing capital spending amid rebounding demand instead of blowing out spending to ramp up production. This is good news for investors.
Exxon said it will spend between $20 billion and $25 billion a year on capital investments through 2027, which represents a 17% to 33% decrease from its pre-pandemic projections. Even though it’s focused on cost-cutting and other measures, Exxon has said it’s focused on enhancing its low-carbon businesses, as part of a broader effort to lower global emissions.
Zacks estimates call for Exxon’s FY21 revenue to soar 57% to $284 billion, with FY22 projected to come in another 11% higher to $315 billion to easily top its pre-Covid totals in 2019 and 2018. Meanwhile, XOM is projected to swing from an adjusted loss of -$0.33 per share last year to +$5.26 a share. The company is expected to follow this up with 27% stronger earnings next year.
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Exxon’s consensus earnings estimates are up big over the last 60 days, including some strong positive revisions recently. This helps XOM grab a Zacks Rank #1 (Strong Buy) right now, alongside its overall “A” VGM grade. Exxon is also part of the Oil and Gas industry that’s in the top 4% of over 250 Zacks industries right now.
Exxon shares have surged 66% in the last year vs. its Sector’s 39% and the S&P 500’s 17%. The rotation out of tech and other growth names into energy and other cyclical areas has been pronounced in 2022, with XOM up 22% vs. the S&P 500’s 10% downturn so far this year. At around $74.50 per share, Exxon is trading near its 52-week highs, but it still has room to run before it returns to its 2014 levels.
On top of its recent outperformance, Exxon’s 4.7% dividend yield provides investors solid income. XOM’s yield top’s its industry’s 3.9% average and blows away both the 10-year and 30-year U.S. Treasuries. Despite its run, Exxon is trading below its year-long median at 12X forward 12-month earnings. This also represents a solid discount to where it traded for several years leading up to the pandemic.
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.Download FREE: How to Profit from Trillions on Spending for Infrastructure >>
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Exxon Mobil Corporation (XOM): Free Stock Analysis Report
Cummins Inc. (CMI): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.