U.S. stocks fell across the board on Friday to end the week with fractional losses. Technology and Healthcare names led the way lower, while the Energy and Financial sectors rallied.
Investors digested the busiest week of the current earnings season and a pile of economic data, including the report on Thursday that first-quarter U.S. GDP grew by 6.4%.
Double-digit personal consumption growth led the way in the first three months of 2021. An upbeat April consumer confidence reading on Tuesday suggested that momentum is carrying forward.
One reason that individuals are spending is the two government stimulus checks. Checks have been sent to millions of Americans this year. To that end, President Biden unveiled a new proposal on Wednesday, for the $1.8 trillion American Families Plan.
The strategy would invest $1 trillion in areas like education and provide another $800 million in tax credits. Like the previously announced $2.2 trillion infrastructure bill, the plan is expected to be hotly debated. The question of raising taxes to help pay for it will likely result in lots of discussion.
Stimulus payments also helped drive U.S. personal income to record 21.1% growth in March. Despite the economy seemingly performing well as the country gradually emerges from the COVID-19 pandemic, the Federal Reserve voted unanimously on Wednesday to keep short-term interest rates near zero and continue $120 billion of monthly bond purchases.
Earnings Season
Earnings season presses ahead this week, with 139 companies in the S&P 500 expected to post quarterly results. CVS Health (CVS) and General Motors (GM) headline the reporting calendar.
To date, seven of eight companies in the S&P 500 have exceeded the consensus analyst profit estimate. According to Refinitiv, aggregate S&P 500 earnings are expected to increase nearly 46% in the first quarter from a year ago. This is up from an estimate of 34% just a week ago.
The Week Ahead
As the calendar turns to May, the big event next week will be the monthly jobs report on Friday. Economists are expecting that about 1 million non-farm payrolls were added in April, as the headline unemployment rate fell to 5.8%.
Following the snap-back recovery in stocks last year from Pandemic lows, we believe that investment gains will be harder to come by in 2021.
As a result, deciding what and when to buy can be challenging for any investor. However, the fact remains that attractive investments are out there if you’re willing to dig a little deeper.
One such Energy name is worth a closer look and is our Stock of the Week.
Stock of the Week: Ovintiv (OVV)
The company is an energy producer with core assets in the Permian basin. Just 28% of its production in 2020 was crude oil, with the majority coming from natural gas and natural gas liquids (NGLs).
The stock gained 6% last week and we believe this momentum can continue into the second half of 2021. Here’s why:
Back in March, Ovintiv announced the sale of its non-core Eagle Ford assets to Validus Energy (VR), for $880 million. The company plans to use the funds to pay down debt.
Ovintiv already had solid operating momentum before the Eagle Ford sale, which was on display Wednesday, when management posted quarterly results that exceeded the consensus analyst profit estimate.
The company earned $1.16 a share in the first quarter and generated $540 million of free cash flow, which it used to reduce total debt by 7%.
Following the results, TD Securities analyst Menno Hulshof upgraded the stock, from Hold to Buy. Hulshof is one of 12 active Ovintiv analysts tracked by TipRanks and the average price target of $29.92 represents 25% upside potential.
In the meantime, Ovintiv is attractively valued at just 7.4x expected 2021 earnings of $3.23 a share. This is a discount to both the broader market and median industry valuation of 8.3x.
The company also carries a Smart Score of 10/10 on TipRanks. This proprietary score utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.
On top of the positive aspects mentioned already, the Smart Score indicates that shares have seen insider buying, in addition to improving sentiment from individual investors and financial bloggers.
FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.