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The Zacks Analyst Blog Highlights: Taiwan Semi, Target and D.R. Horton

Zacks Equity Research

For Immediate Release

Chicago, IL – October 22, 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: Taiwan Semi TSM, Target Corp. TGT and D.R. Horton DHI.

Here are highlights from Monday’s Analyst Blog:

A Noisy Global Week Ahead

This is going to be a noisy Global Week Ahead. That much is certain.

Global policy uncertainty has been at historic highs. That circumstance is not likely to abate after this week.

First of all, equity traders get a broad and granular look into earnings fundamentals.

The U.S. Q3 quarterly earnings season blasts off, with 132 S&P 500 companies reporting this week. Amazon, Biogen, Boeing, Caterpillar, Gilead Sciences, Microsoft, Intel, Twitter, 3M and Visa are among the big names.

Across the pond, the European Q3 earnings season gets moving, too.

We get the big bank stories when Royal Bank of Scotland and Barclays report, amidst the Brexit turmoil.

And yes, Brexit continues to dominate U.K. politics this week.

Boris Johnson hopes to bounce back from his Brexit defeat on Saturday by winning what could turn out to be a historic Commons vote on his new exit deal from the EU.

In Canada, Prime Minister Justin Trudeau’s Liberal party, damaged by a series of scandals, will seek to retain power in a federal election. It happens Monday.

Polls suggest he will be returned to office but only with a minority. This result would leave him in a weak position, obliged to work with opposition parties.

In continental Europe, Mario Draghi hosts his last European Central Bank meeting before handing over to Christine Lagarde, and policy setters gather in Norway and Sweden. That happens on Thursday.

A more volatile Turkey will also set rates. There are many other central banks on the docket late in the week.

Next are Reuters’ five world market themes. These are re-ordered in importance to equity traders.

(1) U.S. Q3 Earnings Season Kicks into High Gear

Third-quarter U.S. earnings season kicks into high gear in coming days — more than 130 S&P 500 companies and over one-third of the Dow industrialswill be reporting results, according to IBES data from Refinitiv.

Reports flow in from many corners of Corporate America, from industrial bellwethers Boeing and Caterpillar to internet retailing titan Amazon.com. Biotech leaders Biogen and Gilead Sciences and carmaker Ford are among others to post results.

Investors have been bracing for gloom, but expectations have improved as early reports rolled in, and analysts now expect third-quarter earnings to fall by 2.9% from the prior year. That compares with a 3.2% drop expected a week ago, IBES data shows.

But the outlook doesn’t seem to have improved for information technology .SPLRCT, a sector comprising more than one-fifth of the S&P 500 index. Here, Refinitiv data indicates earnings could drop by nearly 8% from a year earlier.

Aside from Amazon,Microsoft, the largest company by value, as well as semiconductor stalwarts Intel and Texas Instruments, will post earnings as will payments processor Visa.

(2) European Q3 Earnings Season Opens, Too

Europe’s Q3 season also opens in earnest this week and is likely to again elicit unfavorable comparisons with corporate America.

Since 2013, Wall Street has outperformed Europe’s STOXX 600 index, benefiting from stronger economic growth and the Trump administration turbocharging companies with massive tax cuts.

Europe Inc. on the other hand seems to be stuck in corporate recession. Earnings across the STOXX 600 will likely fall for the third quarter straight, down by 3.7 percent year-on-year, according to Refinitiv data. But as U.S. tax cut effects fade, now might be a good time for Europe to catch up.

Indeed, European earnings growth is seen overtaking the United States in 2020. But with powerhouse economy Germany teetering on the brink of recession and the manufacturing sector sunk in gloom, Europe’s come-back seems as elusive as ever.

There are some, though, who believe a comeback is nigh if the Brexit issue is resolved, Germany agrees to some fiscal stimulus and economic gloom lifts a bit. Any sign of a rebound in next week’s corporate earnings flurry might lead portfolio managers to rethink exposure to the old continent.

(3) Does Boris Johnson Get “Brexit” Legislation Passed This Week?

Britain may be about to draw a line under almost 3 1/2 years of political chaos, economic uncertainty and tortuous discussions with the European Union over the terms of its exit from the bloc.

If the UK parliament gives its nod to the divorce deal Prime Minister Johnson has secured — unlikely, but possible — we might well see sterling rally more than 5%; shares in domestic-focused British companies might rocket to record highs.

Markets will be less euphoric now that Johnson has to request an extension to the Oct. 31 Brexit deadline; it means three more months of Brexit noise, with a bitterly fought election likely thrown in. But with no-deal Brexit risks fading, the pullback may not be too drastic. Depending on the election outcome, Britain will either leave with Johnson’s deal or hold a second referendum that may cancel Brexit altogether.

But if the Brexit battle does end, another one may commence — the race to negotiate long-term trade deals with the rest of the world. Johnson or his successor may find that even more tough going.

(4) Mario Draghi’s Last ECB Meeting Thursday

Thursday could be an emotional day for Mario Draghi, the ECB chief credited with saving the euro and Eurozone with his pledge in 2012 to do “whatever it takes.”

Big policy decisions are not anticipated at the European Central Bank’s meeting given the sweeping easing steps unveiled in September. Instead it will largely be a goodbye to Draghi — whose eight-year term as president ends on Oct. 31.

Dubbed ‘Super Mario,’ Draghi has restored confidence in the ECB’s crisis-fighting ability and navigated the uncharted waters of quantitative easing (QE) — all in the face of fierce opposition from Germany and other conservative Eurozone states.

Draghi might feel a slight sense of disappointment though: Inflation remains well below the ECB’s target of below but close to 2%, meaning he leaves office as the first ECB president to never raise interest rates. And the unprecedented stimulus implemented under his regime leaves his successor with little ammunition to combat another crisis.

Draghi may use his last meeting to urge governments to use fiscal policy more effectively to boost growth and inflation. He’s also likely to be pressed on the divisions within the ECB over restarting QE — but clearly healing that rift will be down to his successor, Christine Lagarde.

(5) Watch Out for Turkey and Argentina

Emerging market hotspots Turkey and Argentina are back in the limelight — and not necessarily for the right reasons.

Turkey’s central bank will announce its latest interest rate decision on Thursday. No doubt, with interest rates at 16.5% the general direction is down, thanks to easing inflation pressures and a leader who is a self-declared enemy of interest rates.

But the meeting comes at a time when the lira is facing fresh challenges from the country’s geopolitical roller coaster, moving currently at breakneck speed after Ankara’s much condemned military push into Syria on Oct. 9, which whacked its bonds and weighed on its currency.

Meanwhile, Argentina’s government is getting ready to face the music as voters are heading to the poll on Sunday Oct 27. Incumbent Mauricio Macri — who suffered a surprise defeat in August primary elections — is trailing well behind Peronist Alberto Fernandez.

The August shocker has rattled Argentina’s debt and currency markets, driving the peso and bonds to record lows while investors fret about a shift back away from business-friendly Macri to populist-style policies.

Another debt restructuring is looming for the serial defaulter, and questions abound over the future of Buenos Aires’ program with the International Monetary Fund. It’s time to get ready and see who may answer them.

Top Zacks #1 Rank (STRONG BUY) Stocks

(1) Taiwan Semi: This is a huge $255 billion market cap semiconductor company — the largest that Taiwan has. Shares trade at $49.28 now.

I see a Zacks Value score of C and a Zacks Growth score of C. It’s been a slog to find earnings support for chip stocks. But traders are still buying. The Zacks Momentum score is A.

(2) Target Corp.: Is retail dead? Don’t tell big box retailer Target. The market capitalization is $58 billion and shares trade at $112.80.

I see a better Zacks Value score of B, and a Zacks Growth score of A. This ties in well with a Zacks Momentum score of B.  All in all, these shares look attractive to lots of different styles of stock traders.

(3) D.R. Horton: This is a $19.9 billion market cap house builder stock. Shares trade at $54.00 or so.

I see a Zacks Growth score of B, a Zacks Value score of B, and a Zacks Momentum score of B. That trifecta is a ‘tell.’ Big U.S. home builders can continue their share price run, for a bit more.

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