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Is It Built Well?
Issue // February, 7, 2023
UPDATE
“It Will Be Cold,” Says Groundhog
By The MARK IT. Team
🌤️ Good morning, and happy Tuesday. We hope you had a great start to your week yesterday. Last Thursday was Groundhog Day, and the report is in: looks like colder temperatures for the next six weeks.
Nevertheless, we hope you enjoy this week’s issue.
WEEK IN REVIEW
Not Your Typical Thursday
By Abbas Akhtar
As we mentioned in our previous Earned Income issue, last Thursday saw a group of notable companies reporting their earnings. Apple, for example, expected 1.95 earnings per share (EPS) and reported 1.88, missing by 3.64%. Expected revenue was also missed by 3.70%. Despite that, the stock shot up 5.68% on Friday morning reaching a high of $156.28.
This is significant seeing as Apple is the most weighted company in the S&P. In this same period, the S&P rose about 1%. However, much of these gains were lost by Monday yesterday. Amazon, after missing its earnings per share (EPS) estimate by a whopping 82.60%, lost 2.47% of the stock value on Thursday.
WEEKLY WATCHLIST
Renovate Your Portfolio
Our stock pick for this week is a well know American chain. It’s also the largest holding is billionaire investor Bill Ackman’s portfolio at 24.74% of total weight.
STOCK #1
Lowe's (LOW)
Having a recognizable brand and being the second largest hardware chain in the US are big pluses for a company that’s trying to grow and stay competitive. Just behind Home Depot, Lowe’s has over a thousand stores in the US and is consistently trusted with home renovation projects and appliance delivery.
We think a recent drop in stock price could attract investor attention.
LOW Stock (6-month), via Google Finance
✅ Increasing cash flows: The past 5 years have seen leaps in free cash flows, and the past 10 have been largely increasing. The sharp jumps as of late may slow down, though, increases in cash flows are always a positive sign.
⚠️ Dividend: With a 1.95% dividend yield, Lowe’s has a dividend that is only slightly above the overall market dividend. The dividend, however, has decreased in the past meaning the yield is not as consistent as other stocks.
✅ Undervalued according to DCF: Based on our discounted cash flow model, a single LOW stock at Monday’s market close price of $215.87 is approximately 25% undervalued.
✅ Low debt: Of the total Enterprise Value (EV) of Lowe's, debt is approximately 18.3% compared to a market cap of 81.7%.
MARK IT. EXPLAINED
Breaking Down Last Friday’s Jobs Report
By Mario Montero-Ruberu
Every month, the U.S. Bureau of Labor Statistics releases a jobs report detailing key employment statistics from the prior month. These statistics include the unemployment rate, nonfarm payroll employment, and wage growth. These statistics combine with other relevant macroeconomic data to provide the Federal Reserve insight into our economic health. Therefore, investors keep a keen eye on this report in anticipation of potential action by the Fed. Let’s break down what Friday’s jobs report revealed.
First, the unemployment rate was reported at 3.4%, smashing median forecasts of 3.6%. Keep in mind that the unemployment rate represents the percentage of the labor force without a job and actively seeking work. 3.4% is notably the lowest unemployment rate we’ve seen since May 1969, surprising many and signaling a robust labor market. On the other hand, hourly wage growth stood at 0.3% month-over-month, falling in line with most analyst projections and hinting at slowed inflation. The biggest shock from Friday’s report was undoubtedly the month-over-month Nonfarm payrolls figure, reported at 517,000 versus median forecasts of 187,000. The Nonfarm payrolls figure is essentially the number of workers employed in industries excluding farming. Needless to say, this figure reverberated and validated all notions that the labor market is red-hot.
What does this all mean for stocks? Rouyaka Ibrahim, an analyst at BCA Research speculates “On the one hand, a resilient labor market could buttress households’ willingness and ability to continue consuming and therefore support corporate earnings and equities over the near term…But longer-term implications are more dire — if a second wave of inflation is triggered, the Fed would have to act more forcefully, perhaps leading to a deep recession.” In other words, there’s a strong positive in more people working, as more people are better able to demand consumer goods and services. However, in a period of still uncomfortably high inflation, the added demand from consumers may do more harm than good. Keep an eye on Fed Chair Jerome Powell, who will speak Tuesday afternoon at the Economic Club of Washington. Investors will watch for his reaction to Friday’s report and any indications that the Fed may persist or shift from their current policy, raising interest rates at a slower pace. Sources: US Bureau of Labor Statistics, MarketWatch
ONE MORE THING
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