- This week’s focus is on consumer price inflation, retail sales, producer prices and retail earnings.
- Walmart is a buy based on strong earnings and is expected to beat forecasts.
- Deere is a best seller with disappointing profit growth, outlook as expected.
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US stocks edged higher on Friday, capping a volatile week. Major indices largely recovered losses from the sharp market slump earlier in the week. After a sharp 3% drop on Monday, the broader market recovered to a nearly flat performance for the week.
Source: Investing.com
The benchmark and the technology-heavy stock lost 0.1% and 0.2% respectively, while the blue chip lost 0.6%.
The week ahead is expected to be another busy one as investors continue to assess the economic and interest rate outlook. As of Sunday morning, investors expect the Fed to cut interest rates by 50 basis points at its September meeting, and there is a 49 percent chance of a quarter-percentage-point cut.
The key item on the economic calendar will be the US consumer price inflation report for July, released on Wednesday, which is expected to show a 3.0% increase in the consumer price index (CPI) compared to the same period last year.
Source: Investing.com
The CPI data is accompanied by the release of the latest retail sales and a report on producer prices to complete the inflation picture.
Meanwhile, in the last big week of the earnings season, results from big-name retailers such as Walmart (NYSE:) and Home Depot (NYSE:) will be released. Other notable reporters include Cisco (NASDAQ:), Applied Materials (NASDAQ:), Deere (NYSE:) and Alibaba (NYSE:).
Regardless of which way the market goes, below I highlight one stock that is likely to be in demand and another that could see renewed losses. However, keep in mind that my time frame Only for the coming week, Monday, August 12th – Friday, August 16th.
Stock to buy: Walmart
I expect a strong performance from Walmart this week. Shares are likely to hit a new record as the discount retailer is likely to deliver another quarter of solid sales and earnings growth and offer an optimistic outlook thanks to favorable consumer demand trends.
Despite the difficult environment for the retail sector, the company has established a good position in the market through its focus on consistently low prices in order to attract a larger share of thrifty consumers who, in the face of economic uncertainty, increasingly value good value for money.
The Bentonville, Arkansas-based retailer, which operates more than 5,000 stores in the U.S., will report its second-quarter earnings report before the U.S. market opens at 7 a.m. ET on Thursday.
According to the options market, market participants are expecting a significant swing in WMT stock after the quarterly earnings print, with a possible implied move of about 5% in either direction. Earnings have been catalysts for outsized swings in stocks this year, according to data from InvestingPro. Walmart stock was up 8% when the company reported its last quarterly earnings in mid-May.
In a sign of growing optimism, analysts have made significant upward revisions to their earnings forecasts in the weeks leading up to the earnings release. In particular, 21 of the last 23 earnings revisions have been upward, reflecting growing confidence in the retail giant’s financial performance.
Source: InvestingPro
Consensus is for Walmart to report earnings per share of $0.65, up 6.5% from EPS of $0.61 in the year-ago period. Revenue will grow 3.5% annually to $167.3 billion, driven by strong grocery sales and more customers signing up for the Walmart+ membership program.
It is worth noting that the wholesaler has exceeded Wall Street’s sales expectations for 16 consecutive quarters, demonstrating the strength and resilience of its business.
Walmart’s U.S. store sales and e-commerce spending, which grew 3.8% and 22% respectively last quarter, are likely to beat estimates again as consumers flock to the company’s stores and website to place more orders for in-store pickup or delivery.
Looking ahead, I believe Walmart CEO Doug McMillion will provide solid guidance for the second half of the year as the discount retailer continues to gain market share in the food and grocery business, a sector that remains resilient even in a difficult economic environment.
WMT shares ended Friday’s session at $67.95, within sight of its record high of $71.33 reached on July 19. With a market capitalization of $546 billion, Walmart is the world’s most valuable brick-and-mortar retailer and the 12th-largest company traded on the U.S. stock exchange.
Source: Investing.com
Walmart has stood out from other retailers, with its shares up 29.3% year to date. In contrast, the SPDR® S&P Retail ETF (NYSE:), which tracks a broad, equal-weighted index of U.S. retail companies in the S&P 500, has gained just 1.5%.
As InvestingPro points out, Walmart is in excellent financial shape thanks to strong earnings and revenue growth prospects, combined with an attractive valuation and a pristine balance sheet. Additionally, it’s worth noting that the company has increased its annual dividend payout for 29 consecutive years.
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Stock for sale: Deere
On the other side of the spectrum, I see a disappointing week ahead for Deere stock, with a potential crash to new lows on the horizon as the farm equipment maker’s recent earnings and guidance disappoint investors due to weaker industry demand trends and uncertain fundamental outlooks.
Deere’s third-quarter earnings report is scheduled to be released Thursday before the market opens at 6:20 a.m. Eastern Time. The results will likely be impacted by slowing global demand for farm equipment due to falling grain prices.
Prices have fallen by 16% this year, while prices for and have fallen by about 14% and 24% respectively over the same period.
Based on moves in the options market, traders are pricing in a potential implied gain of 6.5% in either direction for Deere stock following the update. Notably, DE stock lost 4% following the latest earnings report, marking the fifth consecutive negative sell-off on an earnings day.
An InvestingPro survey of analysts’ earnings revisions highlights the numerous headwinds facing Deere in the current environment, pointing to increasing pessimism ahead of the release of third-quarter results, with all 13 analysts cutting their earnings per share estimates over the past 90 days.
Source: InvestingPro
Deere, widely seen as a bellwether for the agricultural markets, is expected to earn $5.85 per share, down 42.6% from $10.20 in the year-ago period. Making matters worse, revenue is expected to fall 31.6% year-on-year to $10.8 billion, reflecting slowing demand for its broad range of farm, mining and construction equipment amid a weak market for agricultural commodities.
If this figure is confirmed, it would be the tractor manufacturer’s fourth consecutive quarter of declining sales, and even greater declines are expected in 2025.
Therefore, I am convinced that Deere’s management will disappoint investors with its forecasts and adopt a cautious tone given the gloomy outlook for agricultural and mining equipment sales due to the difficult business environment.
DE shares closed at $346.03 on Friday, not far from their lowest level since September 2022. The Moline, Illinois-based agricultural equipment maker has a market capitalization of $95.3 billion.
Source: Investing.com
Shares of the agricultural and construction equipment company have significantly underperformed the broader market so far in 2024, falling 13.5% while the S&P 500 has gained 12%.
It is worth noting that InvestingPro paints a negative picture of Deere stock, citing concerns over declining earnings and revenue growth prospects. In addition, the company faces challenges from rising input costs and supply chain disruptions, which are likely to put further pressure on its margins.
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Announcement: At the time of writing, I am long the S&P 500, and over the SPDR® S&P 500 ETF (NYSE:) and the Invesco QQQ Trust ETF (NASDAQ:). I have also been on the Technology Select Sector SPDR ETF (NYSE:).
I regularly adjust my portfolio of individual stocks and ETFs, continuously assessing both the macroeconomic environment and the financial data of companies with risks.
The views discussed in this article represent solely the opinion of the author and should not be construed as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for further stock market analysis and insights.
