Mid-Week Update: Look For a U-Turn in Our New Watchlist Stock
Dear Trader,
The year is young, but it has been full of market action… and not all for the better.
Stocks have moved into the red so far with the S&P 500 Index down by around 4% and the even more technology-weighted Nasdaq 100 Index down by around 7%.
Right now, the big factor driving trades is the potential impact of higher US interest rates and bond yields.
Higher interest rates and bond yields could have an impact on funding costs for many companies, but with last year seeing plenty of new loans and bond issuances, more and more companies won’t be pressed to borrow a great deal as they should be good with plenty of cash on their balance sheets.
But higher rates and yields can impact discounting of future earnings and asset values to net present values (NPVs).
This means that if a highly valued stock, particularly in technology, is subjected to a higher discount rate, that could mean that the NPV of future earnings and future asset values could be lower, resulting in some traders selling those stocks to reflect this current valuation.
The antidote to this is to get companies’ future earnings and asset values up to counter that discounting. And so far, there is plenty to argue that there is the potential to do just that.
Earnings Ahead
Right now, we’re in earnings season. And results should be generally good.
But the key for the markets is guidance for the current and following quarters for this year. And analyst compiled estimates show projected gains for sales and earnings for these quarters.
This is good for getting companies’ future earnings and asset values higher and justifying buying shares now rather than selling.
And with US economic data supporting growth from consumers as well as businesses, the economy is not heading to recession right now but rather is still expanding, aiding more sales and earnings for companies.
This means that the stock market still presents buying opportunities… in the right stocks of the right companies. And that’s what we are focused on right now for you.
Today, we’re adding a new stock to our Watchlist for Money Magnet Express with Costco Wholesale Corporation (COST). It joins Visa Inc. (V), which also has potential opportunities in the making.
Now, before we get to our current stocks, as you read in our Alert on Friday, we had to exit the idea in the iShares Russell 2000 ETF (IWM) for a controlled loss that worked to take away the big pain from this week.
And if you haven’t done so already, be sure to check out today’s session recording on our website.
Costco Wholesale Corporation
Costco Wholesale Corporation (COST) is the membership-based discount retailer that is beloved by its customers for its high-quality food and other goods at low prices.
The company was just what all of us needed during much of the stay-at-home times, and that even continues through to today and beyond.
Sales continue to climb for Costco, with the recent quarters matching or exceeding the trailing annual gain of over 17%.
Margins in the food retail industry are traditionally narrow, but Costco makes the most of its buying capabilities to push them above many of its traditional retail peers.
And of course, unlike traditional retailers, it has recurring revenue from its subscription memberships, adding to its revenue with more dependability than its peers.
We are looking for a turnaround for the stock that can be seen here in the daily trading chart…
We are currently looking for a long trade idea towards a target price of $545.28.
We just need the market to break the one hour down trend line and enter into the buy zone. Here is the hourly price chart…
We are now looking for a potential entry above $506.00 and will keep you informed in an alert if it triggers an entry for the Trade Tracker.
Visa Inc.
Visa Inc. (V) is a financial payments and processing company serving banks, financials and retailers around the globe.
It also provides additional financial services for institutions and other clients.
With the robust consumer spending in the US and beyond, Visa should continue to gain business and revenue, aiding the company and of course the stock price.
We are monitoring the company and the stock for the potential entry and will keep you informed in an alert if it triggers an entry for the Trade Tracker.
With the stock now trading around $206.45, we are looking for a potential entry level for this trade.
If we get an entry, the target could be seen at $248.12.
Get The Full Rundown
To get the full rundown on this week’s action, be sure to check out today’s session recording on our website…
And for the latest on all of our stocks, click here.
Keep on trading,
Josh Martinez
Editor, Money Magnet Express