Target Q4 Earnings Analysis
Target shares are trading higher this morning after the company’s fourth quarter earnings report release. The big box retailer reported a revenue decline for the third quarter in a row, forcing them to miss revenue YoY revenue growth for the first time in seven years. Target’s troubled started with some circumstances with the LGBTQ community, but their sales didn’t fall back as much as anticipated. They maintained a strong position in the market for a time, however now the inflation burn is starting to take hold. The theme of weak sales in discretionary items remained the same, which account for 50% of the company’s annual revenue. Pressure from competitors like Walmart, Costco, and Amazon is also mounting as consumers tighten their budgets, but nonetheless we see opportunity in the stock. Target’s price to earnings ratio is at about 19, making it a bargain compared to Walmart’s 30 P/E, Amazon’s 62 P/E, and Costco’s 51 P/E. The company’s chances of a bounce back are very high after inflation cools and they still have a strong loyal consumer base to keep them afloat till that point. These lows are still an opportunity for the savvy investor who has time on their hands.
]]>SPY
Chart done on hourly timeframe. Last week was an eventful week that brought many reputable stocks down to levels not seen in months. There was already uncertainty in markets from earnings and economic slowdowns, but The Fed’s FOMC meeting was the spark that set-off a steep multi-day sell-off. Although The Fed didn’t raise rates, they reaffirmed their willingness to hike rates even higher in 2024 as needed to battle the lingering inflation. The CPI report has shown a month over month increase in inflation over the last three months, and this week we will receive the PCE report, which is The Fed’s preferred inflation gauge. Markets desperately want to see improvement on the PCE index in order to alleviate the mounting pressure, but unfortunately forecasts show a rise in PCE due to a sharp increase in energy prices.
Apart from an update on inflation, markets will receive the final GDP reading for the second quarter of 2023. Preliminary readings showed an increase of 2.1%, which marks the fourth quarter in a row of growth in the U.S. Consumer spending has been moderately positive in 2023, which has contributed to the modest GDP growth, but it has also contributed to inflation, making it a double edged sword.
Technical analysis:
September’s three largest volume days (9/15, 9/21, 9/22) have been strongly red days, controlled by sellers. Last week, SPY broke below the 100 day moving average, which means it’s currently trading at a price below the average price buyers have been willing to pay over the last 100 days. This is a support not broken since March 2023, which explains the sharp increase in selling volume upon the break. Coming into this week, our support in focus is 430.00. Buyers managed to defend that level on Friday, but not with enough strength to suggest a reversal. Markets are far from regaining bullish confidence, there are multiple resistance points (see chart) to break below bulls take control again above 445.50.
]]>MSFT
Chart done on daily timeframe. It is amazing to see a growth company that has existed for so long yet still growing as if customers are just discovering its products. Microsoft is one of those companies that has something special about it and has managed to dominate in its industry despite fierce competition. This dominance didn’t go unnoticed in 2023 as buyers flooded the stock and took it to its recent new all time highs near 367.00, also making it one of the market leaders this year.
Fundamental analysis:
Fundamentally, Microsoft is growing immensely. The company’s revenue has more than doubled in the last six years to a massive 212B TTM (trailing twelve months). Many companies grow in revenue, but their bottomline shrinks, but this is not the case for Microsoft as their net income as grown along side their sales. Their asset to liability ratio is very healthy at 2:1, the company has over 400B in assets that makes them a giant, but more importantly they also have close to 60B in free cash flow. Free cash flow is key to a company’s survival, especially in the tech industry where cash is necessary for research and development to stay ahead of competition. On a scale of 1-5, Microsoft score a perfect 5 fundamentally.
Technical analysis:
Microsoft is currently trading at a price to earnings ratio of 35, and the tech industry average P/E ratio is currently 35.82, but software stocks in specific right now have an extremely high P/E ratio of 390. A healthy P/E for most tech stocks is between 15-25, 25 considered “expensive” or over-valued, but although Microsoft is at 35, this doesn’t discourage us from buying or holding the stock. Microsoft’s growth has proven to be exponential so the current price is still considered a healthy one when taking into account future growth. The company might need a future correction on its charts, but long term it is a great choice an is likely to see higher targets in the years to come.
]]>SPY
Chart done on hourly timeframe. The S&P500 notched another 2023 high last week with the help of Apple after it breached the $3 trillion market cap, the first company to ever do so. Many other companies are trading just below their yearly highs and Apple’s move may encourage bulls to press the gas on buying and move the entire tech sector higher, continuing the uptrend we’ve seen all year. Coming into this week the main focus will be about the labor market. Last month’s unemployment report showed a reading of 3.7% unemployment, up from April’s 3.4%. The small gain in the unemployment percentage isn’t a sign of concern yet, but markets will be monitoring the new report closely for changes. The biggest threat higher interest rates have is the threat of increasing unemployment and so far The Fed have managed to slow inflation without pushing unemployment into risky territory, so this week we’ll be watching for an update, expectations are still 3.7%, unchanged from last month. The second main focus this week is The FOMC Minutes report. Anytime The Fed speak or release a report, markets get a little anxious so be prepared for that on Wednesday.
Technical analysis:
SPY regained its buying volume on Friday and managed to break above the June highs, reaching 443.90 before pulling back, making that the main resistance in focus coming into the week. A move above that level has a price target of 448.00.
]]>
Marine Shipping / Oil Tankers:
American and European oil tankers are seeing more movement now that they’re cutting off Russian oil. This means new import and export routes will be taken from different countries, naturally bringing more business to companies in this sector that operate out of Europe and the Americas. Here are the names we’ll be focused on this week, but we’re not limited to these specific companies.
FRO
Stop loss: 9.10
Price target: Members only
Second PT: Members only
Industrials:
Countries are racing to build new infrastructure that supports developing technologies. This demand is a gold mine for companies that are in the industrial and material part of the picture. Construction companies will retain a huge benefit from the developing world, here are some names we’re focused on:
CAT
Stop loss: 216.00
Price target: Members only
Second PT: Members only
Consumer Defensive / Discount Stores:
The inverted yield curve has brought on a wave of recession fears for Americans so we’ve seen a spike in consumer defensive companies such as the ones listed below. These are companies that sell goods/products which Americans buy regardless of economic conditions because they mostly sell household necessities. Historically many of these companies have always held their grounds in the events of a recession because their profits don’t fall short.
COST
Stop loss: 585.00
Price target: Members only
Second PT: Members only
Utilities:
Like consumer defensive companies, utilities also tend to hold investors’ attention during times of uncertainty because their use remains consistent. Here are some names to focus on:
NRG
Stop loss: 38.50
Price target: Members only
Commodities (Oil, farmland, precious metals)
Many commodities marked new 52 week highs at the start of 2022 as investors rotated capital out of high valuation companies and into wheat, corn, oil, gold, natural gas…etc. Geopolitical tensions shook up the normal trade prices along with supply, which naturally brought prices higher, adding further to the inflation we’re seeing. Historically, inflation has been hedged by precious metals such as gold and silver, which explains the inverse relation we’re seeing between major indexes like SPX and GLD. We’re placing commodities on watch this week because of the position many tech companies ended last week. Many tech names are at critical support so if they don’t hold. commodity stocks are expected to rise. Here are some names we’re focused on:
GOLD (Barrick's Gold)
Entry: Members only
Stop loss: 24.80
Price target: Members only
Agricultural/Fertilizer:
Tensions between Russia and Ukraine are sharply impacting global access to fertilizer and other agricultural resources, resulting in a spike in price across the world and a major fear of a food crises. This short term fear of rising costs has caused a spike in agriculture and fertilizer companies, these are some of the names we’re focused on:
DE
Entry: Members only
Stop loss: 406.00
Price target: Members only
Consumer Defensive:
The inverted yield curve has brought on a wave of recession fears for Americans so we’ve seen a spike in consumer defensive companies such as the ones listed below. These are companies that sell goods/products which Americans buy regardless of economic conditions because they mostly sell household necessities. Historically many of these companies have always held their grounds in the events of a recession because their profits don’t fall short. Here’s a list of companies that have seen strong bullish action lately and are holding up against the market turmoil:
TSN
Entry: Members only
Stop loss: 91.00
Price target: Members only
Second PT: Members only
Insurance/Financials
The only company we’re watching in this sector is AIG due to recent announcements of their partnership with BlackRock. BlackRock is a behemoth money management company and AIG just gave them access to manage up to $150 billion. This move was a result of AIG’s recent announcement to separate its life and retirement unit’s stock. (Source: Think Advisor).
AIG (Strong technical analysis)
Entry: Members only
Stop loss: 61.00
Price target: Members only
Second PT: Members only
LGVN (High risk / high reward)
Entry: Members only
Stop loss: Members only
Price target: 18.00-20.00
Second PT: 23.00-25.00
HON
Entry: Members only
Stop loss: Members only
Price target: 200.00-202.00
Second PT: 207.00-210.00
BLNK
Entry: Members only
Stop loss: Members only
Price target: 29.00-29.20
Second PT: 30.00-31.00
NOC
Entry: Members only
Stop loss: Members only
Price target: 475.00
Second PT: 490.00
GOLD (Barrick Gold)
Entry: Members only
Stop loss: Members only
Price target: 26.00
Second PT: 27.00-27.30
SPY
Analysis done on two hour candles. Markets are headed into a shortened week of trading in observance of the Martin Luther King Holiday, but the week is still jam-packed with exciting new earnings reports. The last week was a turbulent one for large cap names due to uncertainty from Omicron’s impact on the economy and the continued rise of inflation, but earnings season may restore the confidence. Many companies like be reporting on their 4th quarter performance which is historically a strong quarter due to holiday shopping. The first set of earnings in focus for this week will be bank earnings on Tuesday and Wednesday, which will help gauge economic health since banks typically deal with lending and borrowing in every industry from consumer, retail, and corporate. We saw financial stocks underperform in the last 24 months when compared to tech, but since interest rates are expected to rise this year, financial stocks may begin gaining more market share. Looking at the technical analysis, our major indexes are all experiencing a pull back, but w are still in a healthy position overall and are on track for a bullish push in the coming weeks.
]]>SPY
Analysis done on 30 minute and daily candles. We have a critical day ahead of us tomorrow as the Fed decide the fate of monetary policy and how they plan to strategize to end the year, the main topics in focus were discussed on our SPY analysis last Sunday. Another major event to add to the mix is the recent default of Chinese giant Evergrande. The company is running out of money quickly and they are going to hurt the pockets of many Chinese and offshore lenders (Us). With the uncertainty of overall world economic health, Evergrande’s recent headlines caused a ripple effect of fear across world markets. It’s important to understand that when giant investment and real estate companies go bankrupt, those people owe borrowed money to banks and lenders across the world and the money will be lost if Chinese doesn’t bail out Evergrande, the decision is yet to be made. As far as SPY’s chart goes, we ended the day down again, moving closer to Monday’s lows. If we break those lows tomorrow then SPY is at risk of declining towards 428.00 and 426.00. Apart from large caps declining rapidly, small cap and penny stock markets are still providing plenty of opportunities, but are requiring a bit of a more strategic and modest approach.
]]>