JILL vs. GOOS: Which Stock Should Value Investors Buy Now?
The Dow traversed a difficult week, declining over three consecutive trading sessions. Investors remained concerned over the prospects of a trade war following President Trump’s decision to impose tariffs on steel and aluminum imports. Trump’s decision to dismiss Secretary of State Rex Tillerson added to investors’ jitters. Ultimately, investors looking to pick up blue chip stocks on the dip helped the index finish in the green on Thursday.
Last Week’s Performance
The Dow increased 1.8% on last Friday, moving past the 25,000 mark for the first time since Feb 28. Upbeat jobs data and lower wage growth subdued inflationary concerns and curbed rate hike fears. The U.S. economy added 313,000 jobs in February, exceeding the consensus estimate of 208,000 job additions. However, average hourly wages rose only 0.1% in February, lower than January’s 0.3% increase.
The index gained 3.3% last week. President Trump signed his tariff plan into law per which fresh levies of 25% on steel imports and 10% on aluminum imports will be imposed. However, the plan excludes countries like Canada and Mexico, offering Trump a chance to renegotiate terms of the NAFTA with the two countries. Also, the United States wants to discuss national security issues with both these countries.
The Dow This Week
The index declined 0.6% on Monday. Investors remained concerned about the prospects of a trade war following Trump’s decision to impose tariffs on steel and aluminum. Fears of this nature dragged industrials lower during the session, a decline which weighed on the broader markets.
Three Dow components from this sector, United Technologies Corporation UTX, 3M Company MMM and The Boeing Company BA declined 1.9%, 0.6% and 2.9%, respectively.
The index lost 0.6% on Tuesday after the Trump administration dismissed U.S. Secretary of State Rex Tillerson. Additionally, Trump ordered Broadcom Inc. AVGO to abandon the planned takeover of QUALCOMM Incorporated QCOM, following which shares of Qualcomm declined and weighed on the broader markets.
Meanwhile, the Consumer Price Index (CPI) increased 0.2% in February, in line with the consensus estimate. This figure was lower than January’s increase of 0.5%. This development significantly reduced rate hike fears.
The index decreased 1% on Wednesday, ending in the red for the third consecutive trading day following concerns over a possible trade war between the U.S. and China. Any hostile move from China will jeopardize Boeing’s performance, which is why its shares fell 2.5%, weighing on the Dow, which registered a one-day decline of around 250 points. Shares of 3M declined 1.4%.
The index rebounded on Thursday, increasing 0.5%. Special counsel Robert Mueller reportedly subpoenaed Trump Organization for Trump’s business-related documents. This factor along with trade war fears weighed on investor sentiment.
However, the Dow managed to post a one-day rise of around 116 points, after investors indulged in bargain hunting, seeking out blue-chip stocks on the dip. Dow component UnitedHealth Group Incorporated UNH increased 1.8% and was the biggest contributor to the blue-chip index’s gains on the day.
Components Moving the Index
Apple Inc. AAPL is likely to come up with a new version of iOS and macOS at its 2018 annual Worldwide Developers' Conference (WWDC) set to begin on Jun 4.
The company announced on its website that the session will involve “100 technical and design-focused sessions presented by Zacks Rank #3 (Hold) Apple engineers to help you build the next generation of apps using newly announced Apple technologies.” Apart from software announcements, the company might as well make big announcements related to hardware.
Apple, to keep up its sales, is now rumored to launch three variants of iPhone in 2018. Notably, the company is also rumored to be working on new “high-end, noise-canceling, over-ear” headphones, upgraded versions of AirPods with advanced Siri integration and next generation of smart speaker HomePod with face ID technology. (Read: Apple Announces WWDC '18 Dates, Expectations on the Rise)
Boeing and Lockheed Martin Corp.’s LMT joint venture United Launch Alliance’s (“ULA”) subsidiary has secured a contract for its satellite launch services. Per the terms, United Launch Services, LLC (“ULS”) — the subsidiary — will deliver AFSPC-8 and AFSPC-12 satellites to their intended orbit.
Awarded by the Contracting Division, Launch Systems Enterprise Directorate, Space and Missile Systems Center, Los Angeles Air Force Base, CA and is valued at $354.8 million.
Per the modification contract, ULS will carry out launch vehicle production, mission integration, launch operations and spaceflight certification for the AFSPC-8 and AFSPC-12 missions.
Operations will be completed by March 2020 to deliver the AFSPC-12 satellites. The AFSPC-8 satellites will be delivered post the completion of operations in June 2020.The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chevron Corporation CVX and Phillips 66’s PSX joint venture (JV) Chevron Phillips Chemical Company LP, recently announced that it is ready to put its new ethane cracker located at its Cedar Bayou facility in Baytown, TX to work, which got delayed due to the Hurricane Harvey. Chevron has a Zacks Rank #3.
The company launched feedstock and started operations at the new cracker, which was primarily scheduled to come online during the 2017-end. Per the company, the new facility, one of the most energy efficient crackers, has a production capacity of 1.5 million metric tons per annum.
The new ethane cracker's construction was started in 2014 and its completion marks the finishing of the final phase of the company’s $6 billion U.S. Gulf Coast petrochemicals project. The facility is expected to increase the company’s U.S. ethylene and polyethylene production capacity by 40%. (Read: Chevron Phillips Brings New Ethane Cracker in Texas Online)
Merck & Co., Inc. MRK announced that a supplemental Biologics License Application (sBLA) for its anti-PD-1 therapy, Keytruda, has been accepted under priority review by the FDA.
With the latest application, Zacks Rank #3 Merck is looking to expand the label of Keytruda for the treatment of advanced cervical cancer with disease progression on or after chemotherapy. With the FDA granting priority review, a decision is expected on Jun 28.
This is the first time that the FDA has accepted a filing for an anti-PD-1 therapy in cervical cancer. Meanwhile, this is the fourteenth regulatory submission for Keytruda accepted by the FDA. The sBLA was based in part on data from phase II KEYNOTE-158 study. (Read: Merck's Keytruda Gets Priority Review for Cervical Cancer)
Pfizer Inc. PFE announced a positive outcome from FDA Gastrointestinal Drugs Advisory Committee (GIDAC) meeting that discussed the company’s supplemental New Drug Application (sNDA) looking for label expansion of Xeljanz (tofacitinib).
Zacks Rank #2 (Buy) Pfizer is seeking to get Xeljanz approved for the treatment of adult patients with moderately to severely active ulcerative colitis (UC). Xeljanz, a Janus kinase (JAK) inhibitor, is already approved to treat rheumatoid arthritis and active psoriatic arthritis. The supplemental New Drug Application (sNDA) for Xeljanz is currently under review by the FDA. (Read: Pfizer Gets FDA Panel Backing for New Indication for Xeljanz)
Walmart Inc. WMT has expanded online grocery delivery services to more than 100 metro regions in the United States. The announcement follows the recent launches of various kitchen products and meal kits.
The expansion strategy will enable Zacks Rank #3 Walmart to reach nearly 40% of the nation’s household, by the end of this year. Currently, this service is available in six markets. The initiative is expected to provide consumers with more accessibility to Walmart’s flourishing online grocery delivery services. (Read: Walmart to Strengthen Grocery Delivery, Plans Expansion)
Performance of the Top 10 Dow Companies
The table given below shows the price movements of the 10 largest components of the Dow, which is a price weighted index, over the last five days and during the last six months. Over the last five trading days, the Dow has lost 1.9%.
Next Week’s Outlook
Markets are passing through difficult times, primarily due to developments related to the Trump administration. President Trump has fired several key officials recently, adding to the atmosphere of uncertainty and instability. Meanwhile, his decision to impose tariffs and his pronouncements on China has weighed on big industrial names. Given this backdrop, investors will look likely look toward key economic releases, such as the GDP report, for comfort over the next week.
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