The NASDAQ popped to start the week; the S&P 500 managed a small gain and the DOW ended with a small loss. Despite mixed results, the three major indexes are essentially in the same position. Each is perched at the top of its recent range.
The next move is key. If Wall Street takes prices through topside resistance, then stocks should make a nice move higher. On the other hand, if weakness rules the day, then some mild selling is probable. Our momentum model says the odds favor a push higher.
However, with earning season essentially over, there is only one short-term catalyst, more stimulus. A stimulus package could drive prices up, but we would not be surprised to see the market wander a little until Labor Day. After that, the attention will turn to the Presidential election. Then, regardless of your politics, the market is likely to track President Trump’s poll numbers.
One of the most overused stock market clichés is that Wall Street hates uncertainty. Investors know what to expect from Trump/Pence while Biden/Harris bring some uncertainty to the markets. Once the election is over, then you’ll see the Street position itself with either “Biden” or “Trump” stocks.
After Labor Day, we’ll identify some companies that could benefit depending on who is the next President of the United States.
A hodgepodge of sector/industry exchange traded funds (ETF) dotted our weekly performance leaderboard. Money rolled into underperforming sectors with Invesco Dynamic Leisure and Entertainment ETF (PEJ) and iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI) claiming the top two spots.
PEJ probably offers more value as many question marks remain regarding an industry rebound. There are plenty of stories about movie chains offering heavily discounted tickets to entice movie viewers, limited concerts, delayed cruises, restaurants closed forever… As such, investors should tread carefully as many potential potholes could make holding PEJ a bumpy ride.
We are lukewarm, at best, on either.
It’s slim picking in the PEJ portfolio. Of the 29 holdings, World Wrestling Entertainment, Inc. (WWE) is the only we’d consider at the moment. Analysts expect the company to grow its sales by nearly 16% in 2021 to $1.15 Billion from an estimated $991.55 million in 2020.
Earnings per share (EPS) are also expected to get a boost next year, to $1.86 from $1.58 this year. In the past five-years, WWE has traded with an average price to earnings (P/E) ratio of 65.02. If management were to hit the street’s 2021 EPS target and trade with a 65.02 P/E, the stock would price out at $120.93. On the downside, investors paid a minimum of 24.95 times WWE’s earning per share since 2015. Using the low P/E and next year’s earnings projections, World Wrestling Entertainment would be a $46.10 stock. It trades at $44.89 as we type.
Based on the numbers outlined above, World Wrestling Entertainment, Inc. (WWE) appears to offer investors limited downside and substantial upside in the next 12-18 months.