An important week in the fourth-quarter earnings season just concluded, and there are certainly mixed opinions about where stocks are heading in the next several quarters. While there are strong cases to be made regarding valuations, particularly in tech, and how beaten up some stocks have gotten, the recent growth forecasts suggest that stocks might still be expensive.
For example, the user engagement issues impacting Meta Platforms (FB) weren’t reflected Snap’s (SNAP) results, as the latter enjoyed a more than 50% surge in its share priced on better-than-expected user growth. As such, it has become a stock pickers market. And that’s certainly seemed to be what occurred Friday as the major averages ended Friday’s session mixed, though they recorded their second straight week of gains, thanks in part to a solid January jobs report.
The Dow Jones Industrial Average on Friday ended slightly lower, falling 21.42 points, or 0.06% to end the session at 35,089.74. The Blue Chip index rebounded slightly after a falling more than 500 points on Thursday. The S&P 500 index ended 23.09 points higher, adding 0.52% to close at 4,500.53, while the tech-heavy Nasdaq Composite Index added 219.19 points, gaining 1.58% to close at 14,098.01. After falling almost 4% on Thursday, the Nasdaq was powered by gains in Tesla (TSLA), Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT).
For the week, the Nasdaq was the biggest gainer, rising 2.4%. The S&P 500 rose 1.6%, followed by the Dow which gained about 1.1%. As noted, this was the index’s second straight week of gains, following the four straight weeks of declines which preceded it. Despite the rebound on Friday, however, investors are understandably nervous about what is broadly expected to be an aggressive round of rate increases by the Federal Reserve. Heading into the new week, there are arguments to be made that some stocks have reached oversold levels.
What’s more, while issues related to chip shortages and supply chain have certainly been disruptive, there have been some positive commentary from companies such as Apple that suggest the disruption is being well-managed and could be short-lived. Some of the guidance have also been encouraging. Is that optimism well placed? I suspect that this question will be answered by the end of this earnings season. Here are the stocks I’ll be watching this week.
Lyft (LYFT) - Reports after the close, Tuesday, Feb. 8
Wall Street expects Lyft to earn 9 cents per share on revenue of $938.86 million. This compares to the year-ago quarter when it reported a loss of 58 cents per share on revenue of $569.9 million.
What to watch: LYFT shares are now trading around almost 40% below recent highs, seemingly punished due to perceived pressures of the omicron variant. Is now an ideal time to ride Lyft’s recovery? With the stock is trading almost below its IPO price, that’s one of the main questions investors are asking, especially when assessing for opportunities to play the pandemic re-opening. While the company has dramatically accelerated its path to profitability, its core business is based on transportation and mobility. The company is waiting for demand to recover to pre-pandemic levels. The execution has been solid evidenced by increases in both revenue per rider and active riders which have trended well over the past several quarters. Notably, revenue per active rider is higher on a two-year comparison. Meanwhile, the management’s cost-cutting initiatives continue to drive improved profitability. But for the shares to rebound, Lyft on Tuesday must deliver a top- and bottom-line beat, while affirming it is well-positioned to benefit from a pandemic recovery.
Peloton (PTON) - Reports after the close, Tuesday, Feb. 8
Wall Street expects Peloton to lose $1.19 per share on revenue of $1.14 billion. This compares to the year-ago quarter when earnings came to 21 cents per share on revenue of $1.06 billion.
What to watch: Peloton stock has been under heavy selling pressure over the past few months. The market has lost confidence that Peloton’s at-home connected subscription platform can be monetized to produce sustainable results. The company is navigating multiple headwinds, including supply chain constraints and balance sheet pressures. That said, now might be a good time to take a position, according to analysts at Baird, who recently re-affirmed an Outperform rating on Peloton with a price target to $40, reflecting a 60% premium from current levels. The analysts believe Peloton offers yet potential value for the subscription business. But it’s all about the execution. On Tuesday investors will want to hear how the company is navigating these headwinds to deliver revenue and profit growth in the quarters ahead.
Disney (DIS) - Reports after the close, Wednesday, Feb. 9
Wall Street expects Disney to earn 62 cents per share on revenue of $18.87 billion. This compares to the year-ago quarter when it lost 32 cents per share on revenue of $16.25 billion.
What to watch: Has the magical rise in Disney finally come to an end? While the company has enjoyed strong success thanks to its streaming platform Disney+, shares have fallen 8% year to date, and almost 20% in six months, trailing the the S&P 500 index in both spans. Meanwhile, over the past thirty days, shares are down 8%, while the S&P 500 has fallen just 5%. The market is re-assessing the company’s valuation which had risen as if it were a growth stock, thanks to its direct-to-consumer initiative with Disney+. However, with the company’s success being often associated with the so-called “streaming wars,” Disney stock has become a victim of this narrative, falling in sympathy to Netflix’s (NFLX) recent downbeat earnings results and guidance. However, unlike Netflix, Disney is well-diversified with multiple streams of revenue. So it remains to be seen whether the “streaming wars” discussion persists beyond this quarter. The company has exceeded Wall Street’s growth expectations over the past several quarters. On Wednesday investors will nonetheless want more details about Disney’s long-term growth strategy to assess its true valuation.
PepsiCo (PEP) - Reports before the open, Wednesday, Feb. 9
Wall Street expects PepsiCo to deliver EPS of $1.52 per share on revenue of $24.23 billion. This compares to the year-ago quarter when earnings were $1.47 per share on $22.45 billion in revenue.
What to watch: How much have supply chain disruptions impacted Pepsi’s operating metrics? While the snack and beverage giant is broadly seen as a “safety and value” play, thanks to its solid execution and inflationary effects, the company has had to increase costs and limit its output as it adjusts to supply-chain headwinds. Some analysts expect the company to report quarterly EPS that would be flat on a year-over-year basis and potentially 4 cents below consensus. Will that be enough to propel the stock higher? The shares have nonetheless performed well over the past six months, rising 10.5% against 2.75% rise in the S&P 500 Index. The stock has traded flat year to date, compared to a better than 5% decline in the S&P 500 Index. The company has been rewarded for its strong execution, reporting not only rapid organic sales growth, but also consistently strong free cash flow growth. The company is investing in new brands and adapting to new trends, which has begun to pay dividends, evidenced by the 8% organic revenue growth forecast for 2021 in the last quarter. Meanwhile, unit volume was also strong for food/snacks, while rising by mid-single digits for beverages. The company still believes that there is plenty of room for growth in its core snacks and beverages business. On Wednesday Pepsi will need to demonstrate that growth.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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