U.S. markets closed

Market Overview: Investors Go Bargain Hunting

Friday closed with a flourish of buying, as the President called a national State of Emergency, regarding the coronavirus spread. The sharpest daily market decline since 1987 on Thursday, was quickly followed by the largest rally since 2008 a day later.

In fact, this was the first time since 1929 that the S&P 500 index moved more than 4% each day of the week. Somewhat masked in these moves is the intraday volatility, including twice when trading was halted, as circuit breakers allowed for a 15-minute cooling off period for investors.

The net result this week was an 8.8% decline in the benchmark index, led by the Energy sector. The group fell along with the underlying price of crude oil, as Saudi Arabia and Russia failed to agree on production quotas, sparking a price war.

Coronavirus Update

Whether you’re talking stocks and bonds or commodity prices, the main driver of volatility these days remains fear of the global spread of the coronavirus.

At this point, the number of global cases is over 145,000, with more than 5,400 deaths reported. This includes nearly 2,300 cases in the U.S., where there have been 49 deaths.

The potential economic impact of the pandemic is beginning to gain hold. On Wednesday, the U.S. enacted a European travel ban.

Elsewhere, the entire 60-million population of Italy has effectively been quarantined. Back at home, Google has told 100,000 employees to work from home. Business and cultural events are being postponed and school closings are piling up across the U.S.

What to Do Next Week?

Following an emergency 50-point interest rate cut (to a range of 1%-1.25%) on March 3, the Federal Reserve injected liquidity into markets this week, buying up Treasury notes. Fed funds futures are pricing in at least another 75-point reduction at the next FOMC meeting, on March 18.

Aggressive traders pushed the yield on the benchmark 10-year U.S. Treasury note as low as 0.38% this week, but the bond is currently quoted back up at 0.98%.

After the ECB failed to cut interest rates further on Thursday (from -0.5%), doubt is creeping in to how aggressive the Fed will get in the near term.

If the number of coronavirus cases continues to rise in the U.S., market bulls will want to see both 1) direct Federal stimulus plans and 2) more interest rate cuts, to keep supporting stock prices.

It’s too early to say if the bottom has been set in the major market indexes, but volatility is likely here to stay for the time being.

We know that deciding what and when to buy can be challenging for any investor, especially when volatility is on the rise and sentiment can quickly shift from Bull to Bear.

However, the fact remains that attractive investments are out there, if you’re willing to dig a little deeper.

One such Consumer name with an attractive dividend yield that has seen recent insider buying, is worth a closer look and is our Stock of the Week.

Stock of the Week: Kellogg (K)

The company makes cereal and other foods, under the Corn Flakes, Rice Crispies and Pop Tarts brands.

The stock gained fractionally this week, while the broader market declined and we believe this momentum can continue throughout 2020. Here’s why:

Management delivered quarterly results last month that exceeded the consensus analyst estimate. Kellogg earned $0.91 a share in the December quarter, as revenue fell 2% from a year ago, to $3.22 billion. Upside in the period was driven by the company’s strategy to invest more in its own business to improve sales.

Investors can currently acquire Kellogg’s packaged profits for an attractive price. The stock is valued at 16.8x expected full-year earnings of $3.80, which is a discount to both the broader market.

The company also offers a quarterly dividend of $0.57 a share (3.6% yield) that is backed by its stable balance sheet.

One holder who sees value in the company is CEO Steven Cahillane, who recently stepped up to buy $1.1 million of stock on the open market.

Several potential reasons exist why investors may sell shares, but they generally only buy when the near-term outlook is positive. Arguably, no one understands a company’s prospects better than its CEO.

In the meantime, it’s worth noting that K carries a Smart Score of 10/10 on TipRanks. This proprietary score utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.

On top of the positive aspects mentioned already, the Smart Score indicates that the company has improving sentiment from analysts, investors (both professional and individual) and financial bloggers.

FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.

You may also want to learn more about how we use TipRanks indicators to find stocks that are primed to outperform. Discover the Smart Investor portfolio here >>