Weekly Preview: Stocks To Watch (BOX, CRM, INTU, PANW, WDAY)
Positive economic data sent stocks soaring to fresh record highs Friday, but it still seems that investors are less confident that the gains are sustainable. That is, if you’re judging by the low trading volumes which suggests only a handful of stocks, mainly the large-cap FAANGs, are doing the heavy lifting. How long can that last?
On Friday, the Dow Jones Industrial Average gained 0.68%, or 190.60 points to close at 27,930.33. The S&P 500 index, which notched its second record close this week, added 11.65 points, or 0.3% to end the session at 3,397.16, while the Nasdaq Composite Index added 46.85 points to closed at yet another new all-time high of 11,311.80. Thanks to gains from Apple (AAPL), Amazon (AMZN), Facebook (FB) and Tesla (TSLA), the Nasdaq logged its 36th record this year.
In terms of weekly gains, the Nasdaq was the biggest winner, netting almost 3%, while the S&P 500 only added 0.7%, the index logged its longest weekly win streak in almost a year. While these gains from the three main benchmarks are impressive, it still remains a dynamic of “the haves” and the “have nots.” What do I mean by that? Well, while the S&P and Nasdaq are producing record closes, there’s still a large portion of the stock market that continues to struggle and is largely dependent on not only the economy re-opening, but things getting back to “normal.”
There is no better example than to look at the small-cap Russell 2000 index, which declined 0.8% Friday to close at 1,552.47. The index, which lost 1.5% this week, is still down 7.5% in six months and about 6.6% year to date. That group of stocks is broadly reliant on the next round of coronavirus stimulus. While the market expects Congress and the White House to eventually reach an agreement on an aid package, the delay is what has contributed to the lack of volume is mentioned in the intro.
Aside from stocks prices, trading volume — often a gauge of momentum — is one of the most closely-watched indicators of where the market may go next. For now, it seems investors favor the growth names which are well-capitalized and are positioned to benefit during the pandemic. For those who are on the sidelines, however, the small-caps could be a way to bet on an eventual vaccine and the economy coming back to some semblance of normal. That likely won’t happen this week.
In the meantime, here are the stocks I’ll be watching.
Palo Alto Networks (PANW) - Reports after the close, Monday, Aug. 24
Wall Street expects Palo Alto Networks to earn $1.39 per share on revenue of $923.24 million. This compares to the year-ago quarter when earnings came to $1.47 per share on revenue of $805.8 million.
What to watch: Enterprise security specialist Palo Alto stock has gone on an impressive run, bouncing some 117% from its 52-week los, especially after underperforming the market for most of the year. But “impressive” in this case is relative. While the stock trades near all-time highs, the year-to-date gains is just 17%, while the 6-month output stands at 8%. That’s nothing to complain about, to be sure. But relative to, say, Crowdstrike (CRWD) and Zscaler (ZS), which has skyrocketed by 83% and 148%, respectively in six moths, there’s some concern there. Palo Alto which has delivered twelve straight top- and bottom-line beats, still has arguably best-of-breed products and services compared to its competitors. The question on Monday, however, will be with the company can get investors (and analyst) excited about its stock relative to its competitors.
Intuit (INTU) - Reports after the close, Tuesday, Aug. 25
Wall Street expects Intuit to earn $1.04 per share on revenue of $1.56 billion. This compares to the year-ago quarter when earnings it posted a loss of 9 cents per share on revenue of $994 million.
What to watch: The parent of TurboTax, Mint and Quickbooks accounting software has seen its stock climb 22% year to date. But growth may be harder to come by in the quarters ahead due to the effect the pandemic has had on its customers. The company’s two largest business segments — Small Business and Self-Employed Group and Consumer and Strategic Partner Group — are both in the crosshairs of the recession. And given that both segments produced double-digit revenue growth in the recent fiscal year, the rise of unemployment and the rate the business closures/bankruptcies are likely to pressure its fiscal 2020 revenue growth forecasts of 10% to 11%. On Tuesday investors will want some level of assurance that the trough of the core business is peaked, if not is stabilizing.
Salesforce (CRM) - Reports after the close, Tuesday, Aug. 25
Wall Street expects Salesforce to earn 67 cents per share on revenue of $4.9 billion. This compares to the year-ago quarter when earnings came to 66 cents per share on revenue of $4 billion.
What to watch: Salesforce has not produced the growth investors expected, but the company is still lauded on Wall Street. On Friday the stock received a Street-high target of $254 by analysts Patrick Walravens of JPM Securities. The company’s SaaS business model and its customer relationship management services are a must-have for companies looking to add capabilities such as sales, marketing, e-commerce and analytics to grow their businesses. Citing “strength in the Service cloud” and what he calls “sales morale,” the analyst boosted the stock price to $254, up from $191, arguing that the sock would trade at $300 if it were priced inline with its peer group. The valuation argument is nothing new for Salesforce. But the company’s stock has had a history of disappointing after earnings results are released. Will this time be different?
Box (BOX) - Reports after the close, Wednesday, Aug. 26
Wall Street expects Box to earn 12 cents per share on revenue of $189.56 million. This compares to the year-ago quarter when the reported a breakeven quarter on revenue of $172.55 million.
What to watch: Although the company has quickly emerged as leader in the highly competitive cloud content management market segment, the market hasn’t fully embraced Box's long-term growth potential. With the stock down roughly 10% over the past month, bears have begun to argue that it’s time for the company to finally graduate from “potential” to out-performer. Box’s Q1 revenue growth of 13% was somewhat underwhelming, compared to other leading cloud players. Amid the rapid shift to work-from-home — which would seem to benefit Box’s services — the company’s Q2 guidance also didn’t imply the level of growth investors expected from the company’s recently-launched Box Shield and Box Relay services. All told, Box has a lot to prove on Wednesday.
Workday (WDAY) - Reports after the close, Thursday, Aug. 27
Wall Street expects Workday to earn 66 cents per share on revenue of $1.04 billion. This compares to the year-ago quarter when earnings came to 44 cents per share on revenue of $887.75 million.
What to watch: Software stocks have been a key driver of the market’s strong rebound from the March lows, but cloud specialist Workday has been largely ignored during the rally. While the stock is up 2% over the past six moths, that performance pales in comparison to the likes of leading software stocks such as Microsoft (MSFT), Salesforce (CRM) and Adobe (ADBE). Notably, this is even despite Workday’s extensive collection of cloud-based solutions such as accounting, financial reporting, analytics, compensation, among others. These verticals would seem to offer Workday a pathway to multiple years of growth, particularly as businesses work to adjust to a remote-work environment. As such, the company’s guidance and billings forecast on Thursday will need to affirm this sentiment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.