The twenty-second year of the 21st Century (or 23rd year, depending upon how you count) ended to mixed reviews. The pandemic is rising for yet another encore. The stock market logged its worst performance in 14 years. And layoffs continue to climb as employers brace for a possible recession. On the bright side, signs appear to be increasing that the Fed’s inflation strategy is having an impact. Prices for oil and gasoline, as well as used cars and other items, are receding. That all points to a possible shortening of the interest rate-hike cycle, and gives reasonable cause for optimism as investors open their calendars to the fresh pages of the New Year.
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Stocks To Watch: Five Industrials With Shallow Flat Bases
Amid a rough, volatile stock market, industrial stocks are showing relatively steady strength. Dow Jones giant Caterpillar (CAT), Deere (DE), United Rentals (URI), Terex (TEX) and Cummins (CMI) have all formed flat bases in recent weeks. Caterpillar is right at a buy point in a flat base that’s just 6% deep next to a much-deeper consolidation. Deere has a new flat base after drifting down to its 10-week line. Terex and Cummins also have pulled back to the 10-week line. URI stock is holding at its 21-day line.
Economic Calendar: Focus On December Payrolls
Friday’s December payrolls will be the big data point in the coming holiday-shortened week. Wednesday’s JOLTS (Job Openings and Labor Turnover Survey) release from the Labor Department and ADP’s monthly National Employment Report on Thursday will provide the usual early glimpses on the month’s employment. Final December manufacturing indexes from Markit and ISM on Tuesday and Wednesday, respectively, followed by December services indexes, may also have some impact on the year’s first trading week.
Technology: Hi Tech’s Flagship Trade Show
The annual CES kicks off in Las Vegas on Jan. 5 for a four-day showcase of the latest tech developments, gadgets and automotive advancements. The 2023 CES will be the first time featuring new exhibits on Web3 and the Metaverse, and a host of new Augmented Reality and Virtual Reality devices will be on display. Volkswagen is set to unveil a new electric sedan as the tech sector’s flagship trade fair has pivoted to emphasize auto announcements in recent years. And there will be plenty of new laptop, smartphone and wearable device launches from the biggest companies in the industry.
Automakers: China EV Sales
Insurance data suggests China’s total new energy vehicle (NEV) sales from Dec. 19-Dec. 25 were about 182,000 units. That’s up 48% compared to last year and a 12.6% increase from the previous week. However, despite end-of-year discounts, Tesla (TSLA) registrations fell to an estimated 8,915 on the week. Tesla registrations for the first three weeks of December were 11,670, 12,977 and 10,254, respectively. As China has eased Covid restrictions, there have been reports of widespread outbreaks of the virus throughout the country.
Tesla China and other China-based automakers have now warned deliveries and production could possibly fall due to Covid disruptions. Tesla is expected to release global Q4 and full-year deliveries data on Jan. 2. China EV companies Nio (NIO), Li Auto (LI) and XPeng (XPEV) will likely release December, fourth quarter and 2022 deliveries data on Sunday, Jan. 1. Warren Buffett-backed BYD (BYDDF) is expected to give its own report in early January.
Semiconductors: Aehr Leads Chip Earnings Season
Aehr Test Systems (AEHR), a maker of semiconductor test and reliability qualification equipment, will report its fiscal second-quarter results late Thursday. Analysts predict the Fremont, Calif.-based company will earn 8 cents a share on sales of $12.8 million in the quarter ended Nov. 30. That would translate to year-over-year growth of 60% in earnings and 33% in sales. Aehr, which has benefited from the growth of power semiconductors in electric vehicles, has been a top-performing stock lately. It has an IBD Relative Strength Rating of 98 out of 99. It will kick off the calendar fourth-quarter earnings season for semiconductor stocks. Investors are closely watching the sector for signs that the chip cycle has bottomed. The semiconductor earnings season will begin in earnest on Jan. 12 when Taiwan Semiconductor Manufacturing (TSM) posts its Q4 results.
Stock Market Earnings
Thursday
Constellation Brands (STZ) reports third-quarter 2023 results early Thursday. Analysts expect earnings to drop 6.7% to $2.91 per share. That’s quite a drop off from an average gain of 25.6% over the last three quarters. Revenue is expected to edge up 3% to $2.39 billion. Sales for the beer, wine and spirits maker have hummed along at an average clip of 11.8% since Q4 2021.
Lamb Weston (LW) reports fiscal second-quarter results on Thursday. The spud juggernaut rallied nearly 40% for 2022, and remained in a buy range on Friday. Food price inflation has powered three quarters of big earnings growth and modest gains. Analysts estimate a smaller, 48% earnings jump for Q2. Revenue is seen jumping 14%, in line with the prior two quarters.
Walgreens Boots Alliance (WBA) reports fiscal first-quarter results early Thursday. Earnings have recovered over the past two years after a steep drop in fiscal 2020. Analysts project a slowdown to a 3% EPS gain for the year, starting with a 33% decline in Q1. Revenue is forecast to drop about 3%, which would mark a third straight sales slip. Walgreens stock closed out the year with a five-week decline, leaving shares down about 29% for 2022.
Conagra (CAG) releases its fiscal second-quarter details early Thursday. The stock jumped above a buy point in early December and has since remained in a buy zone. Earnings turned higher early in 2022 as food price inflation ramped higher, and sales have climbed now for four straight quarters. Analysts see a 3% earnings gain and not quite a 7% revenue gain for the second quarter.
Simply Good Foods (SMPL) reports first-quarter 2023 financials Thursday before the market opens. The diet-snacking brand is expected to see EPS fall 4.6% to 41 cents. With this estimate, analysts have SMPL well down from its average 29.5% growth rate through fiscal year 2022. The Street forecasts revenue increasing 7% to $301 million in Q1. This too is well below fiscal year 2022’s average 16.7% sales increase.
Lindsay Corporation (LNN) announces first-quarter 2023 earnings early Thursday. Analysts see EPS ballooning 63.8% to $1.18 while revenue is expected to grow 6% to $176.4 million. The irrigation system and farm equipment manufacturer saw profits grow on average by nearly 70% through the last fiscal year. Meanwhile, revenue also grew on average by 37% over the last four quarters.
MSC Industrial Direct (MSM) an industrial supplies distributor, reports fiscal first-quarter 2023 financials before the stock market opens Thursday. Earnings are expected to grow 17.6% to $1.47 per share. This is slightly lower than the average 26% over the last four quarters. Sales in Q1 are forecast to grow 11.6%, just below the 13.8% average over fiscal year 2022, to $948 million.
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