The stock market is off to a rough start in the first full week of December as Wall Street apparently gets cold feet about its bet that the U.S. Federal Reserve will be able to slow the pace of its rate hikes. The S&P 500 fell 1.8% on Monday to slip back below its 200-day moving average, while the Nasdaq dropped 1.9%. The benchmark and the tech-heavy index were both down over 1.4% through morning trading Tuesday.
Wall Street had grown more confident last week that the Fed would shrink the size of its rate hikes starting in December after Jay Powell seemed to confirm the likelihood of a 0.50% rate hike in a few weeks. But the Fed Chair has never stopped his hawkish tone or wavered from his desire bring down 40-year high inflation closer to the Fed’s 2% range.
The strong U.S. jobs report from last Friday and the upbeat services activity and factory output that dropped on Monday highlight a resilient economy.
The S&P 500 is now back below its 200-day moving average. Still, the S&P 500 is up around 11% in the fourth quarter so far and Wall Street has a clearer picture of both interest rates and earnings, which are the two things that move stocks the most.
The selling to start the week hasn’t been matched by soaring Treasury yields. The 2-year, which largely reflects where Wall Street thinks the Fed Funds rate will end up, floats at around 4.37%. This is up from 4.25% last week, but still below its peak of 4.75% in early November.
The market could remain choppy and volatile until the Fed’s FOMC meeting and the November CPI report. And there might very well be more selling in December and beyond. But market timing is no easy task and those with long-term outlooks shouldn’t be too caught up with trying to get in at the ‘perfect’ entry point.
Plus, there are many stocks with improving outlooks for earnings and revenue heading into 2023, which is no easy task. Today, we utilized our Zacks ‘First Profit’ screen to identify potentially winning stocks that turned things around recently and might continue to improve in December and beyond.
The idea is to search for companies that recently reported their first quarterly profit. More specifically, the screen searches for firms that just posted their first profit last quarter, after not posting a profit for at least the previous four quarters.
Finding companies that recently reported their first profits help investors find stocks that can prove to be big winners. These companies may vary widely. Some of the firms might be new, and this recent profit is perhaps the only profit in its short history.
Meanwhile, other companies might have held an impressive and long history of quarterly profitability, but for whatever reason haven't seen a profit in a while. Therefore, the return to profit could spark a turning point that management had promised or Wall Street had been clamoring for.
The concept is relatively simple: if the trend has been one of improvement, there is a solid chance the trend will continue. This is true whether a company has been profitable, or is just reaching that key inflection point.
And that’s what we are screening for today…
• EPS for the previous 4 Quarters less than or equal to 0
(This means in each of the previous 4 quarters (except the most recently reported quarter) the company has reported earnings of less than or equal to zero, i.e., no profit.)
• EPS for the recently reported quarter greater than 0
(This time, the company reported earnings greater than zero, meaning they finally showed a profit.)
• Current Price greater than or equal to 5
(Stocks that are trading for less than $5 are more speculative.)
The screen is pretty simple, yet powerful. Here are two of the over 40 stocks that made it through this week's screen…
Coupang, Inc. CPNG
Coupang is one of the largest e-commerce companies in Asia and it has successfully fended off Amazon and Alibaba in South Korea. The e-commerce powerhouse went public in March 2021. CPNG’s IPO was one of the largest of any foreign firm since Alibaba back in 2014. Coupang shares have tumbled since its debut alongside much of market, especially anything growth related.
Coupang’s offerings include same-day and next-morning delivery of groceries and other general merchandise. On top of that, CPNG offers prepared food delivery services via its Coupang Eats segment. Beyond e-commerce, Coupang Play is a video streaming service in South Korea and beyond. Coupang posted adjusted earnings of +$0.05 per share in Q3 to top our Zacks estimates and it boosted its outlook.
Zacks estimates call for Coupang to post positive earnings in Q4, Q1 FY23, and full-year 2023, with its upward earnings revisions helping it land a Zacks Rank #2 (Buy) right now. Coupang is projected to swing from an adjusted loss of -$0.11 per share in 2022 to +$0.28 in FY23, with sales set to climb 12% and 14%, respectively.
Wall Street is high on the stock and its average Zacks price target offers 32% upside to the roughly $18 per share it currently trades at. This upside comes despite the fact that Coupang shares have surged 50% in the last six months.
Nine Energy Service, Inc. NINE
Nine Energy Service, which lands a Zacks Rank #1 (Strong Buy), is a Houston, Texas-headquartered oil and gas field services company. Nine Energy focuses on onshore completion and production services, targeting unconventional oil and gas resource development.
The firm operates across major onshore basins throughout the U.S. and Canada. Nine Energy’s core operations are designing and deploying downhole solutions and technology to prepare horizontal, multistage wells for production.
Nine Energy’s Oil and Gas – Field Services segment ranks in the top 8% of over 250 Zacks industries right now. NINE’s crucial oil segment has continued to gain steam as companies slowly boost drilling and production.
Zacks estimates call for its revenue to climb 69% in 2022 and another 25% in FY23. This is projected to see it swing from an adjusted loss of -$2.66 per share to +$0.57 per share this year and then soar 300% to $2.29 a share in 2023. NINE shares have soared nearly 800% in 2022 and 235% in Q4. Despite the run, Nine Energy still trades nearly 40% below its current average Zacks price target.
Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It's easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial to the Research Wizard. You can do it.
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