- Mega-cap tech earnings, Q3 GDP data, PCE inflation in focus
- Exxon Mobil stock is a buy with strong earnings coming up
- Shopify is set to struggle amid slowing sales growth, weak outlook
Stocks on Wall Street closed sharply higher on Friday, while Treasury yields collapsed after a report said the Federal Reserve might consider less aggressive rate hikes after November.
All three major indexes notched their biggest weekly percentage gains since June, with the tech-heavy Nasdaq Composite closing out the week 5.2% higher. The benchmark S&P 500 advanced 4.7%, while the blue-chip Dow Jones Industrial Average gained 4.9%.
The coming week is expected to be another eventful one as markets continue to weigh the Fed’s rate hike plans for the months ahead.
Meanwhile, Q3 earnings season kicks into high gear, with reports expected from the mega-cap tech stocks, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google-parent Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), and Meta Platforms (NASDAQ:META).
The earnings agenda also consists of other high-profile companies, such as Boeing (NYSE:BA), Caterpillar (NYSE:CAT), UPS (NYSE:UPS), Ford (NYSE:F), General Motors (NYSE:GM), McDonald’s (NYSE:MCD), Coca-Cola (NYSE:KO), Visa (NYSE:V), Mastercard (NYSE:MA), and Intel (NASDAQ:INTC).
In addition, there is also important third-quarter growth data due on Thursday, which will provide more clues as to whether the economy is heading for recession. The personal consumption expenditures (PCE) price index - which is the Fed’s preferred inflation measure - then comes out Friday morning.
Regardless of which direction the market goes, below we highlight one stock likely to be in demand and another which could see further downside.
Remember though, our timeframe is just for the upcoming week.
Stock To Buy: Exxon Mobil
I expect Exxon Mobil (NYSE:XOM) to put in a strong performance this week, with shares likely to break out to fresh all-time highs, as the largest U.S. oil company is forecast to deliver explosive earnings and revenue growth when it releases its latest financial results ahead of the opening bell on Friday, Oct. 28.
As per moves in the options market, traders are pricing in a possible swing of roughly 6% in either direction for XOM stock following the earnings update.
Consensus estimates call for the Irving, Texas-based energy giant to post third-quarter earnings per share of $3.67, soaring 132.2% from the year-ago period. Revenue is forecast to jump 45.3% year-over-year to $107.2 billion, as the oil-and-gas producer benefits from improving energy market fundamentals and robust commodity prices.
I believe Exxon’s management will boost its profit and sales guidance for the months ahead as well as lifting its outlook for free cash flow in order to reflect the positive impact of skyrocketing crude oil and natural gas prices on its business.
As such, market players will be curious to hear if the thriving energy company plans to return more cash to shareholders in the form of higher dividend payouts and stock buybacks.
Exxon’s board previously boosted its share repurchase program to up to $30 billion through 2023, up from its prior plan to buy back $10 billion in stock. The oil-and-gas behemoth currently offers a quarterly payout of $0.88 per share, which implies an annualized dividend of $3.52 at a yield of 3.85%.
XOM stock, which has outperformed the broader market by a wide margin this year, hit $106.40 on Friday before closing at $105.86, above the prior record high close of $104.59 from June 8.
Year-to-date, shares have increased a whopping 73%, blowing past the gains made by competitors Chevron (NYSE:CVX) (+47.6%), Shell (LON:RDSa) (22.1%), and BP (NYSE:BP) (+17.7%) over the same timeframe.
At current levels, Exxon has a market cap of $441.2 billion, making it the tenth highest valued public company in the world.
Stock To Dump: Shopify
In my view, Shopify (NYSE:SHOP) stock - which recently sank to its lowest level since April 2019 - could suffer another disappointing week as investors brace for weak financial results from the beleaguered online marketplace platform provider, which are likely to reveal another quarterly loss as well as slowing revenue growth.
According to Investing.com, Shopify is forecast to report a loss of $0.06 per share for the third quarter, compared to a profit of $0.81 in the same quarter last year. If confirmed, it would mark the second straight quarterly loss and the biggest since Q3 2019.
Revenue is expected to increase 19.6% from the year-ago period to $1.34 billion, as the e-commerce company struggles with the ongoing impact of worsening fundamentals and a tough macroeconomic environment of rising interest rates and soaring inflation.
The dismal results will likely lead Shopify’s management to cut guidance amid another sluggish performance in its core e-commerce business, which will fuel further concerns about growth prospects in a post-pandemic world.
Market players expect a sizable swing in SHOP shares following the results, according to the options market, with a possible implied move of about 12% in either direction.
SHOP’s Q3 results are due ahead of the opening bell on Thursday, Oct. 27.
SHOP stock - which split 10-for-1 earlier this year - ended at $29.75 on Friday. It fell to a more than three-year low of $23.63 on Oct. 13.
At current levels, the Ottawa, Canada-based e-commerce specialist - which helps merchants set up online retail shops and manage their brands - has a market cap of $37.8 billion.
Shopify has seen its valuation collapse throughout 2022, with shares sinking 78.4% year-to-date. Even more alarming, SHOP has now pulled back almost 83% since touching a split-adjusted record high of $176 in November 2021.
Disclosure: At the time of writing, Jesse is long on the S&P 500 and Nasdaq via the SPDR S&P 500 ETF (SPY) and Invesco QQQ ETF (QQQ). He is also long on the Technology Select Sector SPDR ETF (NYSE:XLK) and the Energy Select Sector SPDR ETF (NYSE:XLE).
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
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