Strong Earnings To Drive Prices Higher

MARKET WATCH

We are on the verge of another possible leg higher. The NASDAQ closed at a post-COVID high but did not take out the post-COVID intra-day high of 10,824.78 set on July 13th. The highwater mark could offer up some resistance and attract sellers but should not act as too strong of a barrier for bulls. Meanwhile, the S&P 500 has set a new post-COVID closing high as the DOW languished behind.

Our momentum model suggests prices should continue their upward path as the short and longer-term meters are pointing straight up; meaning the overall trend is bullish and the current trend within the broader trend is bullish. That usually means up we go.

Earnings are likely to be the catalyst. As you’ll see below, we believe many of the top names scheduled to report in the next week could post earnings that bypass Wall Street’s forecasts – fingers crossed.

So far, second quarter report cards have kicked some butt. Of the 47 S&P 500 companies that have released their numbers, 36 outperformed projections, 10 underperformed and one hit their earnings per share (EPS) target. That’s a 76.59% beat rate and the highest, if the trend holds, since the third quarter of 2018.
With nearly 800 companies on the docket for the week ahead, bulls could be encouraged if profits continue to roll past expectation.

SECTOR WATCH

A couple of surprising sectors were amongst last week’s top performers on our proprietary sector scoreboard. SPDR S&P Oil & Gas Equipment & Services ETF (XES) was number one on the board, up more than 7.5% in the past week. SPDR S&P Aerospace & Defense ETF (XAR) came in ranked fifth with a gain of 6.14%.

Otherwise, most of the best performers were within healthcare, which has bounced in and out of our highest ranking since COVID-19 moved into the headlines.
Investors with courage might consider XES. Its price
has flattened out since breaking a downtrend and has a clear line of support at $30. A close below $30 could signal more downside; so, investors might consider placing stop loss orders in that neighborhood. On the upside, shares hit a high of $47.65 on June 8, 2020. That’s not all that far from the benchmark, 200-day moving average of $50.20 and falling.

If the “smart money” is rolling into Oil and Gas equipment stocks and pushes the ETF past $35, shares could take a crack at $40. North of $40, and another trip to the mid-$40’s would not be surprising.

STOCK WATCH

After analyzing the 22 companies held in XES, it’s clear that only patient investors should consider any of them standalone. If we were to isolate a single name of the 22, it would be DMC Global Inc. (BOOM).

BOOM is just one a handful within the SPDR S&P Oil & Gas Equipment & Services ETF that analysts believe will grow their top and bottom lines in 2021. Sales are expected to grow by 7% in 2021, from and estimated $220.36 million this year to a consensus forecast of $235.89 million. Earnings per share (EPS) are projected to jump to $0.25 next year from $0.06 this year.

Meanwhile, the energy, industrial, and infrastructure manufacturer appears to offer value relative to its peer group.

  • BOOM trades at 10.3 times cash flow versus 29.3 for the industry.
  • BOOM is valued at 2.3 times book value compared to 3.4 for the industry.
  • BOOM is priced at 1.1 times sales versus 2.2 for the industry.

EARNINGS WATCH

Almost 800 companies will unveil their second quarter, financial report cards this week. Here are our IT Estimates, Predicted Surprises and Surprise Percent compared to Wall Street’s consensus numbers for some of the most recognizable companies.

If our model is correct, it could be a strong week ahead for results.

May all your longs go up and your shorts go down,


Rich Meyers
Investing-Trends.com