The stock market continued its autumn climb last week, rising by 1.87% in the last five trading sessions and up 5.05% for the month. That after a tough September when the Dow Jones Index fell by 4.3%.
The big news this week is the Federal Reserve’s announcement that it would slow the pace of its $120 billion in monthly bond purchases.
“The Fed will taper $15 billion from the monthly pace, with reductions in Treasury bond purchases of $10 billion and a further $5 billion cutback in purchases of mortgage-backed securities,” reported TheStreet’s Martin Baccardax. “Changes in the economic outlook, however, will give the Fed the power to "adjust the pace of purchases if warranted," the central bank said.”
TheStreet’s Action Alerts Plus team says the Fed is on a two-tiered track – and that could lead to higher interest rates.
“While inflation has been running hotter than expected by the Fed, something it has copped to of late, given the recent Employment Reports and the weaker than expected GDP print for 3Q 2021, we could see the Fed start off with a smaller bite size,” AAP said. “If that is the outcome, we could see stocks warmly embrace that news.”
The AAP team continues to think Federal Reserve Chair Jerome Powell will re-emphasize that bond tapering and interest rate hikes are two different decisions, and rate hike contemplation likely isn't on the table until the bond tapering has been concluded.
What’s up next and which stocks are in play? TheStreet’s market mavens have a few ideas on that front.
Lockheed Martin (LMT) . $331.98 – 5-Day Performance (-)0.12%. Lockheed Martin has experienced a downcast 2021, with the stock losing -6.66% on a year-to-date basis.
The tide could be turning as a “blue-chip” stock on a dip buying opportunity, said TheStreet’s Paul Price.
“Lockheed Martin is a major defense contractor to America and much of the rest of the world,” Price noted. “Annual revenue is expected to run north of $65 billion this year.”
Lower-than-expected third-quarter earnings, however, tanked the shares in early November. On November 2, LMT was down almost $50 per share, at $326.55. Last June they fetched almost $397. One day prior to the earnings report, LMT closed at $378.10.
“The company, however, is a proven growth vehicle over the long term,” Price said “Additionally, LMT's dividend was recently boosted by 7.7%, from $2.60 to $2.80 quarterly. It's rare to get a huge markdown on shares of LMT's quality and predictability. Any weakness is likely to be temporary, making this selloff a buying opportunity.”
Over the most recent seven years, LMT typically traded for about 17.6-times current earnings per share accompanied by around 2.77% in yield. Right now it's available for just 11.7-times already reduced 2022 estimates while paying a well above typical 3.43%.
“That valuation is among the best dating back to the start of 2014 and not too far above where LMT bottomed during the COVID-panic in March of 2020,” Price added. “Even a slightly below average valuation reversion could easily justify a rebound to greater than $470 by the end of 2022.”
Regions Financial Corp. (RF) . $24.71 – 5-Day Performance – 5.73%. Regions had had a great run in October – the share price was up 13.87% on a 30-day basis. It’s also up 53.39% on a year-to-date basis.
Last week, TheStreet’s Bruce Kamich took a look at RF to see if investors might consider a deposit.
“We see that the shares made a low in July and a higher low in September before a new high was notched on Friday, October 29,” Kamich said. “The shares are trading above the rising 50-day moving average line and the rising 200-day line.”
Based on company charting, Kamich sees an upside price target of $29.00 in the short-term with a runup to $35 after that.
“Traders could go long RF at current levels and any shallow dip,” he said. “Use a stop at $21.50 for now.”
Ford (F) - $19.11 – 5-Day Performance 13.35%. Ford is not only up 13% for the week, it’s up a whopping 28.35% for the past 30 days and it’s up 117.41% on a year-to-date basis.
It’s not like the auto maker’s production numbers are off the charts. TheStreet’s Rob Lenihan noted that Ford reported sales of 175,918 new vehicles in October, down 4% from a year earlier but improved over prior months. Truck sales were off 7%, while SUV sales rose 12.8%. Ford brand SUVs did post their best October retail sales in 21 years.
Pull the lens back and the company’s financial picture looks better.
Retail sales were up 17.4% from a year earlier on the strength of the new Bronco, Bronco Sport and Mustang Mach-E. The three new SUVs drove sales higher with total combined sales of 19,413 SUVs.
Additionally, Ford said October was "an electrified sales record for Ford," with 14,062 electrified vehicles sold, triple the year-earlier number. The company's E-Transit is sold out and the electric F-150 Lightning has more than 160,000 reservations. Mustang sales fell 30.1% and Lincoln sales dropped 17%, while the F-Series sales declined 4.7% year-over-year.
Lenihan also reports that, at the end of October, the automaker reported having 243,000 vehicles in gross stock, up 7,000 over September. “In addition, Ford took in 77,000 retail orders for new vehicles in October, up 25,000 from September’s new vehicle orders,” Lenihan said.
Last week, Ford shares surged to the highest level in more than seven years after the carmaker topped its larger rival, General Motors GM, with stronger-than-expected third-quarter sales and boosted its full-year profit outlook.
“Ford said it also managed to boost its overall inventory, despite plant closures and delays linked to the global shortage in semiconductors,” Lenihan noted.
Bed Bath & Beyond (BBBY) . $19.64 – 5-Day Performance 36%. Why is Bed Bath & Beyond stock up by 36% over the past week – especially after being down 28.89% over the past three months?
The Street’s Bret Kenwell says the move up on a single trading day last week was enough to stir up a short squeeze conversation, as shares were up more than 50% at the high on Wednesday, November 3. In after-hours trading the stock was up even more dramatically, clearing the $30 level.
“The company has not been shy about its share buybacks, as CEO Mark Tritton looks to improve the retailer’s financial footing and its operations,” Kenwell stated. “So far he's been successful at steadying the operation, although it has been a bit of a bumpy ride”
According to Kenwell, if a short squeeze is still in play with Bed Bath & Beyond stock, the market could be looking at some serious gains around the corner.
“Aiding that squeeze could be the company’s very own buyback plans, particularly with about 27.5% of its shares currently sold short,” he said. “For now, the stock has suffered from a major fade off Wednesday’s high.”
In that trading session, BBBY shares opened near the 50-week moving average around $25 and faded back toward $20 and the 50-day moving average. “From here, we need to see if the stock can regain any upside momentum and challenge this week’s high,” Kenwell said. “Otherwise, a deeper fade could be on deck.”
If it’s the latter, look for a potential gap-fill back down toward $16.80. That would also put the 200-week moving average in play.
“On the upside, I want to see if the stock can reclaim $22.14,” Kenwell said. “If it can, it could put the 50-week and 200-day moving averages in play, along with this week’s high. Above that opens the door to the weekly VWAP measures near $28.50, and then the $30 resistance mark.”