Weekly Market Review: Rally Takes a Holiday

Stock Market

U.S. stocks fell about 2% across the board last week, as the S&P 500 declined each trading session. The only respite for investors was that financial markets were closed on Monday for a holiday.

With the selling starting from at record highs, many market watchers view the action as profit-taking. Bulls will quickly point out that the S&P 500 is expected to deliver 30% aggregate annual earnings growth this quarter, following a 95% increase in the second quarter.

Elsewhere, there were some clouds forming on the investment horizon last week. The European Central Bank (ECB) announced on Thursday that it will slow its emergency bond buying in the fourth quarter, to $60 – $70 billion a month.

Back in the U.S, inflationary pressures also continued to rise. It was reported on Friday that the core producer price index (PPI) grew 6.7% in August, excluding food and energy.

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The Week Ahead

Looking ahead, we’ll get a look at the consumer price index (CPI) on Tuesday. It is expected to show continued growth. August retail sales will be posted on Thursday.

In addition, September economic data will begin to roll in. We’ll see data from a couple of regional manufacturing indexes and the preliminary reading of the University of Michigan consumer sentiment.

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: Matador Resources (MTDR)

The company explores and produces energy commodities, focusing on oil and natural gas shale in the Delaware Basin.

The stock actually gained last week, while most others sold off. We believe this relative outperformance can continue in the final months of 2021. Here’s why:

Matador is leveraged to rising commodity prices and offers a potential natural inflation hedge.

This benefit was apparent when management posted quarterly results in July that surpassed expectations. The company earned $1.02 a share in the second quarter, as revenue grew 468% from the previous year to $357.4 million. Matador also paid down $100 million of debt in the period.

Management is targeting double-digit oil and natural gas production growth this year. The company also generates about 20% of its revenue from a steady midstream operation and the consensus analyst estimates call for Matador to generate 196% annual profit growth over the next two years.

In the meantime, the company appears inexpensive at just 8x expected full-year earnings of $3.58 a share. This is a discount to both the broader market and Matador’s expected profit growth rate.

Wall Street agrees that the stock is attractively valued at current levels. All six active analysts tracked by TipRanks rate the company a Buy and the average price target of $41.50 represents 45% upside potential.

In addition, the stock 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 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.

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