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The Zacks Analyst Blog Highlights: JP Morgan, UnitedHealth, Lockheed Martin and BHP Billiton

Zacks Equity Research

For Immediate Release

Chicago, IL – July 16, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: JP Morgan JPM, UnitedHealth Group UNH, Lockheed Martin LMT and BHP Billiton BHP.

Here are highlights from Monday’s Analyst Blog:

New Earnings Season Opens: Global Week Ahead

The dominant trader focus inside the Global Week Ahead will surely be the Q2 earnings season -- with the usual early focus upon Financials.

Key names are Citigroup, JP Morgan, Goldman Sachs,Wells Fargo, Bank of America, Morgan Stanley, eBay, Netflix, Microsoft,BlackRock,United and Amex.

Fifty-seven S&P 500 firms in total should release Q2 earnings.

Do not expect a robust U.S. earnings season. Consensus pegs a -2.0% y/y drop.

Any relative individual share performance always lies in terms of what is priced into shares via advance earnings guidance. Covering analysts often undercut company earnings estimates before the new quarterly reports hit the tape.  

In turn, on that count, earnings seasons in the U.S. almost always surprise higher.

Next, I show Reuters’ five world market themes for the Global Week Ahead. I put them in order of importance to equities.

(1) Q2 Earnings Reports Start for U.S. and European Firms

Investors are anxious to take the pulse of Wall Street and Europe Inc. to check if second-quarter results justify record U.S. stocks and Europe’s best first-half share performance in more than two decades.

Expectations are already low, as analysts continue to take a red pen to their estimates.

With valuations stretched and lingering worries about the economic impact of protracted U.S.-China trade tensions, disappointing results could pour cold water on the rally.

·         U.S. earnings are seen contracting by -0.3% year-on-year — its weakest performance in three years, according to data compiled by I/B/E/S Refinitiv. That’s down from +1.6% growth in Q1.

·         Companies on Europe’s benchmark STOXX 600 will report growth of +0.8% for the quarter, data shows, an improvement from the -2% drop in Q1 but down from +1.8% growth expected just a week ago.

Full-year expectations are dimming as well:

·         Consensus based on the MSCI index pegs FY earnings growth for Europe at +4.1% - the lowest since 2016 and half the levels forecast at the start of the year.

·         For the United States, it is at +2.7% versus +7.5% in January.
 

Wall Street banks, including JP Morgan, will release results in coming days.

(2) China’s Economy Shows Signs of Tariff Pressure

China’s economy and businesses are showing more visible signs of pain from the trade war, as recent data on producer prices and exports revealed. Monday’s GDP data, no matter how well-massaged, could show quarterly growth at its weakest in three decades and raise doubts over a government aim to keep 2019 growth in the 6-6.5% range.

Beijing’s monetary and fiscal stimulus has hitherto been a fraction of what it was during the 2015 downturn. The government is clearly wary of encouraging another property bubble and reckless rise in investment, both of which were targeted during the 2017 campaign to cut leverage.

But with worsening economic headlines, falling corporate investment and a looming Fed rate cut, the People’s Bank of China cannot merely be operating behind the scenes through local government spending and liquid money markets.

Many expect that a bold, symbolic statement about Beijing’s policy easing intent is needed — most certainly if the Fed also cuts at the end of July. Even though that may just involve the customary, token 10 basis-point cut in China’s benchmark one-year 4.35% policy rate.

(3) Tariff Heat Picks Up on Europe, Too

Just when you thought there may be a glimmer of hope on world trade as talks between Beijing and Washington resume — raising the possibility that the world’s top two economies could clinch a deal — the tariff heat switches to Europe.

On Thursday, French lawmakers approved a tax on big tech companies, potentially opening up a new front in a trade row between Washington and the European Union.

President Trump has ordered an investigation into the French tech tax plans, a probe that could lead to the U.S. imposing new tariffs or other trade restrictions.

And there’s already lots of shuttle diplomacy going on: German Economy Minister Peter Altmaier, after meetings in Washington on Thursday, predicted a 50-50 chance of averting U.S. auto tariffs and that it will take weeks or months to resolve at least some of the thorny trade disputes clouding U.S.-European relations. Never mind all the differences over issues such as aircraft subsidies, car imports and the Russian-led Nord Stream 2 gas pipeline.

Meanwhile U.S. Trade Rep Robert Lighthizer and Treasury Secretary Mnuchin are Beijing-bound in the very near future.

Markets worried over the impact of trade wars on the health of the global economy will be watching closely for progress and deterioration on all those trade war fronts in days to come.

(4) A July 17-18 Meeting of G7 Finance Ministers – Commemorating 75 Years of Bretton Woods

In July 1944 as World War Two raged, finance chiefs from the world’s main trading nations met in Bretton Woods, New Hampshire.

That agreement, signed July 22, was one of the first global monetary policy and currency agreements — re-establishing a gold standard for exchange rates, backing away from competitive devaluations and setting up the International Monetary Fund to bridge balance of payments gaps.

But as the Bretton Woods pact turns 75, that spirit of cooperation, whether on exchange rates or trade, is waning. Trade protectionism is on the rise, and nationalism and unilateralism is being championed by Trump, who says the rest of the world is stealing from the United States via competitive currency devaluations against the dollar.

And so the July 17-18 meeting of G7 finance ministers and central bankers in the French town of Chantilly could well be a fraught one. Taking place at the same time as IMF and World Bank heads join ECB officials in Paris to commemorate Bretton Woods, G7 discussions will focus less on the past and more on how to resolve pressing problems such as the world economy, Sino-U.S. trade tensions, fair exchange rates between the major economies, U.S. anger over France’s plan to tax tech firms such as Google, and Trump’s threat to slap levies on European autos.

Other issues on the table include tax havens, cyber security and Facebook’s proposed new coin Libra that has enlivened the debate about regulation of cryptocurrencies.

(5) The U.K. Pound Gets Battered and Battered

Losing support from monetary policy expectations, the already battered pound faces a tough week ahead. Key economic data such as earnings growth, inflation and retail sales will be closely watched by markets desperately trying to gauge where interest rates might be in a couple of years from now.

Markets have nearly priced in a Bank of England rate cut over the next 12 months after Governor Mark Carney signaled he could be about to join other central banks in cutting rates. Economists expect year-on-year inflation for June to come in at 2% on Wednesday. But if the reading falls below the central bank’s 2% target rate, chances of a rate cut may rise.

However, other data is expected to come in a touch stronger. Average weekly earnings are expected to rise on Tuesday by 3.2% year-on-year in the three months to May versus a 3.1% increase in April. Retail sales — due out on Thursday — are expected have risen by 2.5% year-on-year in June after a 2.3% increase in May.

Brexit, of course, remains the elephant in the room and is the main reason why sterling has fallen by 20% since June 2016, with the country gearing up to hear who the country’s next prime minister will be on July 23.

Top Zacks #1 Rank Stocks

(1) UnitedHealth Group:This is the granddaddy of HMO stocks, at $252B in market cap. The fresh Zacks #1 Rank here comes with a B for Zacks Value and a B for Zacks Growth. Now may be a great time to scoop up some shares for the next run higher.

(2) Lockheed Martin: This is a big, big defense stock. The market cap of $104B is delivered by a high $370 share price. That gives the stock a C for Zacks Value. Yet defense worries are climbing with Iran. Bet on more upside here.

(3) BHP Billiton: This is a $91B market cap mining company based in Australia. Iron ore prices are staying high and covering analysts are, in turn, getting more and more bullish on this stock. The A for Zacks Value and B for Growth are also attractive.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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