The market has tumbled since its early September records, with Wall Street yanking its foot off the gas to put on the breaks heading into the upcoming election, which is less than six weeks away. The uncertainty of the current environment is palpable and the market is deciding what to price in when it comes to possible changes in Washington.
Investors have also grown increasingly impatient about the lack of progress on the stimulus front, as the travel and broader hospitality industries remain devastated, alongside many smaller businesses. Meanwhile, the coronavirus is still hampering a more complete economic rebound in Europe, the U.S. and elsewhere.
That said, the political will for a second round of lockdowns likely isn’t there as economies and people have no other logical alternative beyond learning to live with the virus the best they can. Plus, there continue to be signs of a slow and steady economic recovery, while the earnings outlook continues to improve.
The S&P 500 and the Nasdaq have tumbled, as the big tech names fall back down a little closer to earth. The tech-heavy index is down roughly 12% from its September 2 peak, with the proxy index for the broader market 9.7% off the pace—right below the 10% decline that would mark a technical correction.
These moves are common and healthy. In fact, there have been 24 market corrections since November 1974. And only five of them turned into bear markets, including the violent tumble the market experienced in February and March.
There is no way to predict what will happen next, though technical traders currently point the 200-day moving average as the next big level to watch (nearby chart). Instead, investors must try to remember that someone is always on the other side of a trade. So as the market falls, the big money is likely scooping up stocks. And trying to time the market is very difficult.
Let’s also remember that the Fed plans to keep its interest rates near zero through at least 2023. Like it or not, this creates a sustained TINA effect—there is no alternative—as Wall Street hunts for returns in a yield-starved market.
With all of this in mind, investors with a longer-term horizon of at least a year or more might want to consider adding a few strong stocks right now despite the turmoil…
Intuit is part of the growing cloud-based SaaS industry, which includes Adobe ADBE, Zoom Video ZM, and countless others, that has flexed its muscles during the pandemic. These software firms have become so integral to businesses and consumers that they are hard to replace. INTU offers a variety of financial services and it is most famous for its online tax software, TurboTax. The company also sells software geared toward accounting, small business money management, and personal finance, which include QuickBooks and Mint.
Intuit boasts roughly 50 million customers globally and has seen its annual revenue grow by between 11% and 16% for the last five years. The firm topped our Q4 FY20 estimates in late August, with FY20 revenue up 13%. Zacks estimates call for its FY21 revenue to jump 7%, with FY22 projected to come in over 11% higher. INTU’s adjusted earnings are projected to climb by 8.5% and 13.2% over this stretch.
Intuit’s positive earnings revisions help it land a Zacks Rank #2 (Buy) right now. The stock is also part of a highly-ranked Zacks industry and its 0.76% dividend yield tops the 10-year U.S. Treasury. INTU shares have crushed the tech sector over the last five years, up 250%. And Intuit’s tax-focused offerings are unlikely to go out of style, as the saying goes, with its shares resting 15% off their early September highs.
Target has boosted its e-commerce and direct-to-consumer business, including a variety of same-day offerings. The firm has also invested in a strategic brick-and-mortar approach that will likely continue to pay off, as e-commerce accounted for just 16% of total U.S. retail sales in Q2—up from 10.8% in Q2 FY19. TGT has kept and attracted younger consumers, unlike department stores, through trendy and affordable furniture, home décor, fashion, food, and more.
The Minneapolis-based retailer’s Q1 sales jumped 11%, with Q2 sales up 25%. TGT’s Q2 digital comps soared 195% and it also posted one of its strongest quarters of in-store comps on record, up 10.9%. Meanwhile, its operating margin climbed from 7% in Q2 FY19 to 10%, which comes in well above Walmart WMT and Amazon AMZN.
Target shares are up 160% in the last three years to top WMT’s 72%. TGT is also up nearly 30% in the last three months and still rests near its highs, despite the broader selloff. Target also trades at a discount, as it has for years, to its industry and its peer group. And TGT's 1.79% dividend yield tops Walmart and the 30-year Treasury’s 1.42%.
Zacks estimates call for TGT’s adjusted Q3 earnings to jump 10.3% on 10% stronger sales. Meanwhile, its adjusted fiscal 2020 EPS figure is expected to jump 12% on 12.4% higher revenue. Target’s positive bottom-line trends help it grab a Zacks Rank #1 (Strong Buy) right now.
Microsoft’s Office offerings remain vital to businesses, students, and many others, and it has boosted its remote work push to better compete against Zoom and others. Meanwhile, its next-generation Xbox is due out this holiday season and it recently increased its bet on the booming gaming industry. On top of all of that, and perhaps most importantly, Microsoft is a leader in the cloud computing market and its expansion continues to drive top and bottom-line growth (also read: Why Microsoft Paid $7.5 Billion for Gaming Wizard ZeniMax).
MSFT’s revenue has jumped by roughly 14% for three straight years, with its Q4 FY20 (period ended June 30) sales up 13% amid the height of the pandemic. Zacks estimates call for the historic tech firm’s FY21 revenue to climb 9% and another 10% in FY22, with its adjusted earnings projected to pop 11% and 12.5%, respectively. Microsoft lands a Zacks Rank #3 (Hold) right now and it has seen some positive longer-term revisions recently.
Microsoft, which holds “A” grades for Growth and Momentum in our Style Scores system, holds around $137 billion in cash and equivalents. This gives it the ability to continue to make both small and large acquisitions. Plus, MSFT has outpaced Facebook FB, Google GOOGL, Apple AAPL, and Netflix NFLX over the last five years. Microsoft’s shares rest roughly 12% below their highs and its 1.09% dividend yield tops the 10-year Treasury and Apple’s 0.75%.
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