Clearwater Paper and Logitech International have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 8, 2022 – Zacks Equity Research shares Clearwater Paper CLW as the Bull of the Day and Logitech International LOGI as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Exxon Mobil XOM, Cadence Design Systems CDNS and BioMarin Pharma BMRN.
Here is a synopsis of all five stocks:
Bull of the Day:
Clearwater Paper, a Zacks Rank #1 (Strong Buy), is a long-term stock market winner within the Zacks Basic Materials sector. CLW is currently breaking out to its highest price level this year, all while most stocks hover in bear market territory. The company's longevity and continued stock price ascent speak to management's ability to adapt to the ever-changing market landscape. The Basic Materials sector is currently displaying some favorable characteristics.
CLW sports the highest Zacks Momentum and Growth Style Scores of 'A.' The company is part of the Zacks Paper and Related Products industry group, which ranks in the top 16% out of more than 250 Zacks Ranked Industries.Historical research studies suggest that approximately half of a stock's price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
It's no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success. Let's take a deeper look at this top-rated stock located within a leading sector and industry group combination.
Company Description
Clearwater Paper manufactures and supplies bleached paperboards and parent roll tissues globally. The company offers folding cartons, liquid packaging, cups and plates, softwood pulp products, and commercial printing items. CLW also provides at-home tissue products, including paper towels, bath tissues, and napkins.
The paper manufacturer sells its products to retailers and wholesale distributors, including grocery, club, mass merchants, and discount stores. Clearwater Paper was incorporated in 2005 and is based in Spokane, WA.
Earnings Trends and Future Estimates
CLW has built up an impressive earnings history, surpassing earnings estimates in three of the last four quarters. The company has delivered a +28.76% average earnings surprise over a trailing four-quarter period.
The CLW growth engine is expected to remain hot this year, as analysts covering the paper company have increased their Q3 earnings estimates by 31.03% in just the past week. Analysts are now anticipating phenomenal growth of 176.36% to $1.52/share in the third quarter.
It's a similar story as far as full-year EPS estimates go, as analysts have increased projections by +13.89% in the past 30 days. The 2022 Zacks Consensus EPS Estimate now stands at $4.10/share, reflecting tremendous potential growth of 298.06% relative to last year. Sales are anticipated to climb 20.78% to $2.41 billion.
Let's Get Technical
CLW shares have advanced over 60% in the past four months alone. Only stocks that are in extremely powerful uptrends are able to make this type of price move while the market is in a correction. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Notice how both the 50-day and 200-day moving averages (blue and red lines, respectively) are sloping up and have acted as support this year throughout the bullish move. The stock had been making a series of higher highs. With both strong fundamentals and technicals, CLW is poised to continue its outperformance.
Other Factors to Consider
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Clearwater Paper has recently witnessed positive revisions. As long as this trend remains intact (and CLW continues to deliver earnings beats), the stock will likely continue its bullish run this year. Cautious investors may feel hesitant about investing in a stock that has come this far, but the fact is this elite company is still outperforming.
CLW is relatively undervalued, irrespective of the metric used.
Bottom Line
Solid institutional buying should continue to provide a tailwind for the stock price. CLW is ranked favorably by our Style Score Categories with an 'A' for Growth and 'A' for Momentum, paving the way for an overall 'A' VGM score. This indicates that there's a strong likelihood that momentum will continue on the heels of strong sales and earnings growth.
Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix. Backed by a leading industry group and robust history of earnings beats, it's not difficult to see why this company is a compelling investment. This long-term stock market winner continues to prove its doubters wrong, and investors would be wise to consider CLW as a portfolio candidate if they haven't already done so.
Bear of the Day:
Logitech International designs, manufactures, and markets products that connect people to digital and cloud experiences. The company is a global provider of wireless mice, corded and cordless keyboards, PC webcams, as well as other accessories for mobile devices. In addition, LOGI offers portable wireless Bluetooth and Wi-Fi connected speakers, PC headsets, microphones, wireless audio wearables, and home security cameras.
LOGI's channel network includes consumer electronics distributors, retailers, mass merchandisers, specialty stores, and online merchants. The company sells its products under the Logitech, ASTRO Gaming, Streamlabs, Blue Microphones, Ultimate Ears, and Jaybird brands. Logitech International was incorporated in 1981 and is headquartered in Lausanne, Switzerland.
The Zacks Rundown
LOGI, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Computer – Peripheral Equipment industry group, which ranks in the bottom 8% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months.
Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much tougher.
The odds are stacked against LOGI, and the stock is agreeing with this notion. LOGI experienced a climax top in November of last year and has been in a price downtrend ever since. The share price is hitting a series of 52-week lows and represents a compelling short opportunity as the market continues its volatile start to the year.
Logitech is also relatively overvalued based on the Price/Book ratio.
Recent Earnings Misses & Deteriorating Outlook
LOGI has fallen short of estimates in two of the last four quarters. The electronics company most recently reported fiscal Q1 earnings in July of $0.74/share, missing the $0.83/share consensus EPS estimate by -10.84%. Consistently falling short of earnings estimates is a recipe for underperformance, and LOGI is no exception.
Logitech has been on the receiving end of negative earnings estimate revisions as of late. For the current quarter, analysts have decreased estimates by 17.59% in the past 60 days. The fiscal Q2 Zacks Consensus EPS Estimate is now $0.89, reflecting a -15.24% regression relative to the same quarter last year.
For the year, analysts have also revised their EPS estimates downward by 14.98% in the past 60 days. The 2022 Zacks Consensus Estimates is now $4.03, translating to negative growth of -12.96%. Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
LOGI is in a sustained downtrend. The stock has plunged below both the 50-day and 200-day moving averages. The stock is making a series of lower lows, with no respite from the selling in sight. Both moving averages have rolled over and are sloping down – another good sign for the bears.
While not the most accurate indicator, LOGI has also experienced what is known as a 'death cross,' wherein the stock's 50-day moving average crosses below its 200-day moving average. LOGI would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen nearly 47% in the past year alone.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to print new highs anytime soon. The fact that LOGI is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock's downtrend.
Our Zacks Style Scores depict a weakening outlook for this stock, as LOGI is rated a second worst-possible 'D' in our Growth category and worst-possible 'F' for our overall VGM score. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of an overvalued LOGI until the situation shows major signs of improvement.
Additional content:
Four Giant Tech Groups Keep the S&P 500 Aloft: Zacks August Market Strategy
The following is an excerpt from Zacks Chief Strategist John Blank's full August Market Strategy report To access the full PDF, click here
I. U.S. Markets
The S&P500 (SPY) share index --and the broader underlying U.S. economy-- is now tied directly to the success of just four major, converging, tech business groups.
Microsoft (MSFT), Apple (AAPL), Google/Alphabet (GOOG), and Amazon (AMZN) are the remaining four big titans. That spells MAGA. In the S&P500 market cap weighted index, the 4 companies made up a whopping 21% weight on April 20th, 2022.
They get put in different industry niches. Yet, if you read each Zacks analyst summary (which I have provided) they are converging to a similar tech conglomerate structure.
#1 Apple is 7.1%. It is in the TECHNOLOGY, CONSUMER ELECTRONICS industry.
#2 Microsoft is 6.0%. It is in TECHNOLOGY, SOFTWARE–INFRASTRUCTURE.
#3 Alphabet is 4.2%, with 2.2% in Class A and 2.0% in Class C. It is in COMMUNICATION SERVICES, INTERNET CONTENT and INFORMATION.
#4 Amazon is 3.7%. It is in CONSUMER CYCLICAL, INTERNET RETAIL.
• Microsoft's share performance is benefiting from strength in its Azure cloud platform amid accelerated global digital transformation.
• Teams' user growth is gaining from continuation of remote work and mainstream adoption of hybrid/flexible work model.
• Recovery in advertising and job market boosted LinkedIn and Search revenues.
• Solid uptake of new Xbox consoles is aiding the gaming segment performance.
• The company is witnessing growth in user base of its different applications including Microsoft 365 suite,Dynamics and Power Platform.
• Microsoft expects Surface revenues to grow in the mid-teens range, driven by strong demand for premium devices.
• However, increasing spend onAzure enhancements amid stiff competition in the cloud space from Amazon is likely to dent margins.
• Apple shares are benefiting from continued momentum in Services and robust performance from iPhone, Mac, Wearables and an expanding App Store ecosystem.
• Apple expects COVID-induced supply chain disruptions and industry-wide silicon shortages to hurt the top line by $4-$8 billion.
• Unfavorable forex is also expected to hurt revenues by 300 bps.
• Absence of Russian revenues will hurt the top line by 150 bps.
• Nevertheless, availability of new Mac Studio and newiPad Air is expected to drive top-line growth.
• Apple TV+ is gaining recognition due to award winning shows. This bodes well for the Services segment.
• Alphabet's strong cloud division is aiding substantial revenue growth.
• Moreover, expanding data centers will continue to bolster its presence in the cloud space.
• Further, major updates in its search segment are enhancing the search results.
• Moreover, Google's mobile search is gaining solid momentum.
• Also, strong focus on innovation of AI techniques and the home automation space should aid business growth in the long term.
• Further, its deepening focus on wearables category remains a tailwind.
• Furthermore, the company's growing efforts to gain foothold in the healthcare industry are other positives.
• Also, Alphabet's expanding presence in the autonomous driving space is contributing well.
• Notably, the stock has outperformed its industry over a year. However, its growing litigation issues and increasing expenses are concerns.
• Amazon's revenues were $469.8 billion in 2021.
• The company reports revenue under three broad heads—North America, International and Amazon Web Services (AWS), which generated 60%, 27% and 13% of total revenues.
• Amazon is gaining on solid Prime momentum owing to ultrafast delivery services and strong content portfolio.
• Further, strengthening relationship with third-party sellers is a positive.
• Also, growing momentum across Amazon Music is contributing well.
• Additionally, strong adoption rate of AWS is aiding the company's cloud dominance.
• Also, expanding AWS services portfolio is continuously helping Amazon in gaining further momentum among the customers.
• Further, robust Alexa skills and expanding smart home products portfolio are positives.
• Additionally, the company's strong global presence and solid momentum among the small and medium businesses remain tailwinds.
• However, growing expenses associated with supply-chain constraints and labor supply shortages remain concerns.
It is important to realize: Just four individual tickers really do keep the S&P500 afloat.
II. Zacks August Sector/Industry/Company Telescope
Incorporating half of Q2-22 earnings details, Zacks Ranks offer just one Very Attractive sector: Energy. But this sector may see declining future strength from $95 oil a barrel. However, higher U.S. Henry Hub natural gas prices assist. Energy/Oil stock profit-taking has happened.
Utilities stayed on as a Market Weight. Natural Gas Distribution is the best. Health Care and Communication Services are at Market Weight too. The Medical Care industry remains solid.
Both Consumer Staples and Consumer Discretionary rose a notch to Market Weight from Unattractive. Are we seeing an early top in the price surge? We shall see.
In Financials, Banks & Thrifts looked great. Overall sector looks shaky. Recession worries build.
Materials has become a Very Unattractive industry, with only Containers & Glass holding up.
Info Tech was a Very Unattractive sector. All key industries look poor, including Computer-Software Services, Office Equipment, Electronics, Misc. Tech, and Semis.
(1) Energystays the top sector, rising back to Very Attractive from Attractive. Tops are Oil Misc. industries, the big Integrated plays, and Exploration & Production (E&P).
Top Zacks #1 Rank (STRONG BUY): Exxon Mobil
(2) Utilitiesstay a Market Weight. Utilities-Natural Gas Distribution is a very strong industry.
Top Zacks #1 Rank (STRONG BUY): Cadence Design Systems
(3) Health Care fell to Market Weight from Attractive. Medical Care carries on as best group.
Top Zacks #1 Rank (STRONG BUY): BioMarin Pharma
(4) Communications Servicesstays at Market Weight. Telco Equipment and Telco Services are sitting a touch below Market Weight.
(5) Consumer Discretionaryrose to Market Weight from Unattractive. Autos/Tires/Trucks looked the best. Consumer Electronics was OK. Leisure Services fell to market weight. Home-Furnishing, Apparel, and Publishing look very poor now.
(6) Consumer Staplesrose to Market Weight from Unattractive. Bullish outlier is Agri-business (commodity prices). Beverages look OK. A Very Poor stance for Food/Drug Retail.
(7) Financialsremained at Unattractive. Banks & Thrifts stay the best. Investment Funds and Real Estate are OK. Other groups fall below that, as early 2023 recession worry builds.
(8) Industrialsfall to Unattractive from Market Weight. Transport is the top group. Pollution Control, and Business Services are OK. Aerospace, Machinery, Construction-Building Services, and Metal Fabricating took tumbles, and look poor now.
(9) Materialsfall to Very Unattractive from Market Weight. Containers & Glass are OK.
(10) Info Techfalls to Very Unattractive from Unattractive. Computer-Software Services and Computer-Office Equipment are the best at a touch below Market Weight.
That's it for me.
Enjoy the rest of Zacks August Market Strategy report.
Warm Regards,
John Blank
Zacks Chief Equity Strategist and Economist
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