PDD and Cisco have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – December 22, 2023 – Zacks Equity Research shares PDD Holdings PDD as the Bull of the Day and Cisco CSCO as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Royal Caribbean Cruises RCL, Live Nation LYV and Amazon.com (AMZN).
Here is a synopsis of all five stocks.
Bull of the Day:
Company Overview
Pinduoduo or Zacks Rank #1 (Strong Buy) stock PDD Holdings is an Ireland-based Chinese e-commerce platform founded in 2015. Though PDD is much younger than its rivals like Alibaba Group (BABA) or VIP Shop Holdings (VIPS), PDD has gained significant popularity in a relatively short period, becoming one of the largest e-commerce companies in China.
Temu, A Heavily-Discounted Marketplace, Spurs Growth
Last quarter, PDD’s quarterly earnings grew 31% while revenue soared 89% year-over-year. In fact, for several quarters in a row, PDD has grown the top and bottom-line growth at a robust double-digit clip, far outpacing both its domestic and foreign industry group peers.
The main driver of growth is PDD’s wildly popular online marketplace Temu. Temu is PDD’s discount e-commerce platform, which leverages Chinese vendors to sell and ship directly to customers in the destination country. Because Temu cuts out the intermediary and takes advantage of low-cost labor and product inputs from China, the website can undercut other e-commerce websites like Alibaba’s AliExpress or Amazon (AMZN).
Unique Features
PDD’s websites also offer unique features that are unavailable on other mainstream e-commerce websites, including:
Group Buying
· Users can form groups to purchase the same product together, allowing them to benefit from lower prices.
Interactive Features
· PDD incorporates gamification and social networking elements to engage users more than traditional websites.
Mobile-Centric
· Unlike other platforms, PDD is heavily focused on its mobile app, which is designed to be user-friendly and accessible.
Top and Bottom-Line Growth to Continue
Zacks Consensus Analyst Estimates predict that PDD’s rapid growth will continue well into 2024. Analysts anticipate double-digit earnings and revenue growth over the next few quarters.
Impressive EPS Surprise History
It’s one thing to have high EPS expectations and a whole other thing to execute on those expectations. PDD has done the latter. Over the past 11 quarters, the discount e-commerce giant has surpassed expectations each quarter while handily beating expectations by 25% or more over the past three quarters.
Power Earnings Gap: A Recipe for Higher Prices
After reporting earnings on November 28th, PDD shares launched higher by 18% on volume nearly three times the average. Such power and volume indicate that institutional investors are rushing to enter the stock. Further, because PDD has held its earnings gap and volume has dried up, it is a sign that investors with significant gains in the stock are unwilling to part with shares.
Finally, investors should not overlook PDD’s relative strength versus other Chinese stocks. While China’s economy and stock market have struggled, PDD has thrived. If China is to recover, PDD should see even more strength.
US/China Tensions Cooling?
According to the Wall Street Journal, the Biden administration is weighing a plan to reduce tariffs on Chinese consumer products. Meanwhile, China recently approved the first Boeing (BA) 787 delivery since 2021. If tensions between the world’s two largest economies dissipate, it will be another bullish catalyst for PDD.
Bottom Line
PDD has emerged as a force to be reckoned with in the Chinese and international e-commerce landscape, outpacing competitors with its innovative platform, Temu. With a focus on heavily discounted offerings, unique features like group buying and interactive elements, and a mobile-centric approach, PDD continues to experience robust growth in earnings and revenue. Expect shares to be higher in the next six to twelve months.
Bear of the Day:
Company Overview
Zacks Rank #5 (Strong Sell) stock Cisco is a leading multinational technology company specializing in networking hardware, software, and telecommunications solutions. Known for its extensive product portfolio, Cisco provides a range of networking equipment, including routers and switches, and software solutions for network management, security, and collaboration.
The company offers telecommunications equipment, such as IP phones and video conferencing systems, as well as data center technologies and cybersecurity solutions. Cisco's expertise extends to cloud services, Internet of Things (IoT), and it provides consulting, support, and training services. As a key player in the IT industry, Cisco plays a vital role in enabling connectivity, communication, and secure data management for businesses and organizations worldwide.
Relative Weakness
Nothing is more painful for an investor than being in a stock that is underperforming as the overall market is rising. Because 75% of stocks follow the general market’s direction, a major red flag for prospective CSCO investors should be its abhorrent price performance in 2023. While the tech-heavy Nasdaq 100 ETF is up more than 50% year-to-date, CSCO shares are flat. It’s safe to presume that CSCO will underperform even more if US equities retreat at any point in 2024.
Slowing Growth
What’s behind Cisco’s underwhelming price action? Cisco’s product orders are set to decline by 20% due to elevated inventory levels at the company’s largest customers.
The troubling trend is expected to persist and hurt Cisco’s earnings performance over the next couple of quarters by diminishing top-line growth. Analysts agree – Cisco’s Earnings ESP (Expected Surprise Prediction) is negative. According to our intensive 10-year back test at Zacks, when a company sports a negative ESP score combined with a Zacks Rank of #5 (Strong Sell), most stocks will miss on earnings and will underperform over the twelve months.
Competition Puts CSCO Between a Rock and a Hard Place
Cisco has been forced to offer discounts and deals in response to stiff competition from competitors like Arista Networks (ANET), Juniper Networks (JNPR), and Hewlett Packard (HPE).
Industry Group
Beyond the overall market direction and earnings estimates, the most critical factor that drives a stock’s price is its industry group. CSCO’s Computer – Networking industry, ranks 235 out of 252, putting it in the bottom 7% of all industries tracked by Zacks.
Bottom Line
Cisco faces significant challenges that warrant investor caution. With a Zacks Rank of #5 (Strong Sell), the company has demonstrated relative weakness, lagging behind the market’s overall performance. Slowing growth, a cutthroat competitive landscape, and a weak industry group make CSCO shares an avoid at this juncture.
Additional content:
Consumer Confidence to Remain Robust: 3 Must-Buy Stocks
U.S. consumer confidence registered a bigger-than-expected jump in December, per the latest report from The Conference Board. The much-viewed Consumer Confidence Index hit 110.7 in the current month, significantly rising from a downwardly revised figure of 101.0 in November. The Present Situation Index rose to 148.5 from 136.5 in November.
More importantly, American consumers are feeling more secure about their prospects over the next six months, as the Expectations Index jumped to 85.6 in December, much better than November’s downwardly revised figure of 77.4. This significantly reduces the threat of an impending recession in the near term, as a reading below 80 generally indicates a recession.
Cooling Inflation to Aid Rate Cuts
The Federal Reserve’s heightened series of rate hikes, escalating from record-low levels in March 2022 to the current 5.25-5.50%, impacted growth-oriented companies, and small and medium-sized businesses.
However, at its Dec 13 meeting, the Federal Reserve kept the interest rate steady for the third straight time and signaled multiple rate cuts in 2024 due to slowing inflation.
The Fed is expected to keep a vigil on the inflation gauge before going for any cuts. It expects core inflation to decline to 3.2% in 2023, 2.4% in 2024 and 2.2% in 2025. Inflation is expected to hit the Federal Reserve’s 2% target in 2026.
High Consumer Confidence to Aid Stocks
The impressive jump in consumer confidence, both current and near term, reflects the benefits of cooling inflation and hopes of at least three rate cuts by the U.S. Federal Reserve in 2024. This, along with strong retail sales (up 0.3% in November) and lower weekly jobless claims (down 19K per the Dec 14 release), reflects the resiliency of the U.S. economy.
According to National Retail Federation data, holiday spending is expected to grow 3-4% over 2022, which is consistent with the average annual holiday increase of 3.6% between 2010 and 2019.
In fact, higher consumer spending buoys GDP growth. Per a survey conducted by the Federal Reserve Bank of Philadelphia, on an annual-average-over-annual-average basis, real GDP is expected to increase 2.4% in 2023 and 1.7% in 2024. These annual projections are 0.3% and 0.4% higher than the estimates in the previous survey.
Despite chances of a bumpy ride in the first half of 2024, U.S. consumer confidence is expected to remain robust on the aforementioned factors. This presents strong growth opportunities for consumer discretionary and retail stocks in 2024.
Our Picks
Here, we select three stocks — Royal Caribbean Cruises, Live Nation and Amazon.com — which are well-positioned to benefit from robust consumer confidence in 2024.
Each of the above-mentioned companies currently sports a Zacks Rank #1 (Strong Buy) and has a market cap of more than $10 billion. You can seethe complete list of today’s Zacks #1 Rank stocks here.
Miami-based Royal Caribbean owns and operates three global brands — Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. The company has been benefiting from solid demand for cruising and acceleration in booking volumes. Also, the emphasis on strong pricing (on closer-in-demand) bodes well. RCL stated that the momentum has continued into 2024, with booked load factors and rates surpassing those of all previous years.
The Zacks Consensus Estimate for Royal Caribbean’s 2024 earnings is pegged at $9.10 per share, rising 9.4% over the past 60 days.
Beverly Hills, CA-based Live Nation operates as a live entertainment company. LYV has been benefiting from the pent-up demand for live events, robust ticket sales, and the sponsorship and advertising business. The emphasis on new client and venue additions bodes well.
The Zacks Consensus Estimate for Live Nation’s 2024 earnings is pegged at $2.40 per share, increasing 38% over the past 60 days.
Amazon is gaining on solid Prime momentum, owing to ultra-fast delivery services and a strong content portfolio. Strengthening relationships with third-party sellers is a positive. Additionally, the strong adoption rate of AWS is aiding the company’s cloud dominance. The expanding AWS services portfolio is continuously helping Amazon gain further momentum among its customers.
The Zacks Consensus Estimate for AMZN’s 2024 earnings is pegged at $3.55 per share, rising 15.3% over the past 60 days.
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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
Live Nation Entertainment, Inc. (LYV) : Free Stock Analysis Report
PDD Holdings Inc. (PDD) : Free Stock Analysis Report
