Four Stocks To Watch This Week (ADBE, AVGO, DOCU, SFIX)
It would be a gross understatement to say this past week has been a roller-coaster trading ride on Wall Street, as the Dow Jones Industrial Average swung 1,000 points or higher twice within three days. Driven by the likely dire economic impact of the coronavirus, which has climbed above 100,000 cases globally, analysts are telling investors to get used to the market volatility.
Investors have responded by rushing to safe-haven assets such as bonds which has pressured prices, notably driving the U.S. Treasury 10-year bond yield to a new record low below 0.8%. Meanwhile, stocks continue to get punished, closing lower Friday amid yet another volatile trading session during which the Dow fell as much as 896 points only to recover about half of the day’s losses to close with a decline of 256.50 points or 1%, to 25,864.78.
The S&P 500 index lost 51.57 points, or 1.7%, to close at 2,972.37, while the Nasdaq Composite index finished lower by 162.98 points, or 1.9%, to close at 8,575.62. Remarkably, despite these declines, all three major averages were positive for the week, led by the Dow which gained 1.8%. The S&P 500 added 0.6%, while the Nasdaq eked out a 0.1% gain. The better-than-expected jobs seemingly didn’t matter. The U.S. economy added 273,000 jobs in February, well above the 175,000 economists expected, pushing the U.S. unemployment rate lower to 3.5%.
While the jobs report appeared to show that the U.S. economy continues to improve, investors realize that the data covered a period before the worst of the coronavirus fears hit. In other words, the data for the next several months will more accurately reflect the global economic impact of the virus. For now, with all three major averages being in correction territory (each down more than 10% from their most recent 52-week high) the market has decided to sell first and ask questions later.
Optimists, on the other hand, would call this environment a buying opportunity. Notably, some 80% of the S&P 500 is now in correction territory, while 40% of the index are currently trading in bear market territory (more than 20% below recent highs). As stocks continue their slide, Larry Kudlow, White House economic advisor, said that he’d be a buyer. “Long-term investors should think seriously about buying these dips. That is my view,” Kudlow said on CNBC following Friday morning’s blockbuster jobs report. Kudlow didn’t say which stocks he would be buying, but here are four names to keep an eye on for this coming week.
Stitch Fix (SFIX) - Reports after the close, Monday, Mar. 9
Wall Street expects Stitch Fix to earn 7 cents per share on revenue of $452.59 million. This compares to the year-ago quarter when earnings came to 12 cents per share on revenue of $370.28 million.
What to watch: Stitch Fix shares, which have been under pressure from competitive threats like Amazon (AMZN), have rebounded impressively, rising more than 26% over the past six months. The company has nonetheless been dragged down with the overall market and has fallen 11% year to date. Nonetheless, several Wall Street analysts have cited Stitch Fix’s direct-buy concept as reason for optimism. Its data-centric business strategy is seen capable of driving an acceleration in revenue growth over the next several quarters. Its international expansion efforts carries a lot of risks, however. Analysts on Thursday will closely follow capital expenses and management attention towards long-term growth prospects and profitability.
Adobe (ADBE) - Reports after the close, Thursday, Mar. 12
Wall Street expects Adobe to earn $2.24 per share on revenue of $3.05 billion. This compares to the year-ago quarter when earnings came to $1.71 per share on revenue of $2.60 billion.
What to watch: Owing to net-new subscribers and the growing adoption of its enterprise services, expectations are high for Adobe’s Creative Cloud segment, which is approaching annualized revenue of $7 billion. The growth has been driven by better-than-expected subscription adoption among government and educational institutions. But Adobe stock has fallen amid the coronavirus outbreak. Wall Street expect not only a top- and bottom-line beat Thursday, but also upside guidance into 2021. Several weeks ago, citing an internal survey showing adoption growth and increasing ARPU within the creative cloud business, UBS raised Adobe's price target from $360 to $430. Analyst Jennifer Lowe sees multiple drivers that can sustain Adobe’s revenue growth in the high teens and at least 20% EPS growth.
DocuSign (DOCU) - Reports after the close, Thursday, Mar. 12
Wall Street expects DocuSign to earn 5 cents per share on revenue of $266.49 million. This compares to the year-ago quarter when earnings were 6 cents per share on revenue of $199.73 million.
What to watch: As the market tumbles from economic impact of the coronavirus, so-called “stay at home” stocks like DocuSign, which provides individuals and businesses the ability to digitize an agreement process, have prospered. The company has seen its stock price soar 49% over the past six months, including more than 13% year to date, compared with an 8% decline in the S&P 500 index. Investors who missed the buying opportunity when I last spoke about this company must now buying it at a more expensive price. For the stock to keep rising, however, DocuSign on Thursday must continue to show not only a re-acceleration of revenue but also outline its path towards profitability.
Broadcom (AVGO) - Reports after the close, Thursday, Mar. 12
Wall Street expects the company to earn $5.36 per share on revenue of $6.01 billion. This compares to the year-ago quarter when earnings came to $5.55 per share on revenue of $5.79 billion.
What to watch: The Philadelphia Semiconductor Index (SOX) is down 11% in thirty days and 8% year to date as the chip sector takes a hit from China's coronavirus worries. During that span Broadcom shares have gotten punished, falling 16% over the past thirty days and 15% year to date. Investors will want to know on Thursday if now is a good time to buy the dip. The answer will be whether Broadcom can sustain double-digit revenue growth for the next couple of years. Optimism surrounding 5G-related sales ramp is expected to reach a range of $300 million and $400 million in 2020 and between $500 million and $600 million in 2021. That’s up from a range of $40 million and $50 million in the second half of 2019.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.