With Thanksgiving fast approaching, this is normally the time I take a step back and evaluate the things to be thankful for. If you have been an avid reader of this weekly column, you can tell I’m an optimist by nature. Rarely do I recommend selling rallies or ignoring buying opportunities when stock prices are low. That’s not going to change. Call it persistence. And it appears, based on this week’s trading action, persistence is what will be needed as the year comes to a close.
Throughout Friday’s session, the major averages couldn’t make up their minds, bouncing between positive and negative territory, indicating the level of uncertainty investors continue to have about the fourth quarter. Friday’s action was consistent with what we have seen over the past few days as inflation indicators are monitored and investors wager on the Fed’s anticipated reaction. Nevertheless, the Dow Jones Industrial Average closed in positive territory, adding 199.37 points, or 0.59%, to close at 33,745.69.
The S&P 500 index rose 18.78 points, or 0.48% to close at 3,965.34, while the tech-heavy Nasdaq Composite Index rose 1.1 points or 0.01%, to end the session at 11,146.06. Following the sharp rally enjoyed last week, driven by the release of better-than-expected inflation data, it was tough treading this week. Although optimism still remain that the Federal Reserve would become more dovish regarding interest rates, investors lacked conviction this week to sustain the momentum. The holiday-shortened trading schedule, which often generates low volume, might have had something to do with that.
As a results, all of the major averages posted losses for the week. The Dow ended 0.01% lower. The S&P 500 lost 0.69% for the week, while the Nasdaq ended 1.57% lower. However, all three indexes are in positive territory for the month. It’s also encouraging that stocks have been in a sustained uptrend since the October 13 lows. Will the rally continue into next week and possibly beyond? That remains to be seen. But given the improved inflation data, staying in the market is still the best strategy as we head into the holiday shopping season. Here are the earnings I’ll be watching.
Zoom Video (ZM) – Reports after the close, Monday, Nov. 21
Wall Street expects Zoom to earn 84 cents per share on revenue of $1.11 billion. This compares to the year-ago quarter when earnings came to $1.11 per share on revenue of $1.05 million.
What to watch: The post-pandemic world has been anything but favorable to Zoom, which has seen its shares punished over the past year, falling 70%. In the most recent quarter, the company trimmed both its profit forecast and revenue outlook for the fiscal year, during which the anticipated earnings at the midpoint range implies a year over year decline of 27%. The lowered estimate prompted Wall Street analysts such as Patrick Walravens of JMP Securities to take a more bearish view. In a note to clients, Walravens warned that Zoom’s overall revenue results are not expected to improve. Similarly, analyst Tyler Radke of Citigroup said the company appears to be “stuck in the waiting room.” However, in my view, the time to be bearish has already come and gone. Although Zoom is not seeing the level of demand it enjoyed at the height of the pandemic, the company is still booking solid enterprise demand from the remote-in-person hybrid work style. As it stands, Zoom’s valuation remains appealing given that the company continues to generate strong free cash flow. To reverse the stock’s bearish trend, in addition to growth re-acceleration, Zoom on Monday will have to issue strong revenue and earnings forecast.
Baidu (BIDU) – Reports before the open, Tuesday, Nov. 22
Wall Street expects Baidu to earn $2.16 per share on revenue of $4.48 billion. This compares to the year-ago quarter when earnings came to $2.30 per share on revenue of $4.44 billion.
What to watch: Renewed optimism about improved cooperation between the United States and China had brought life back into Chinese tech stocks like Baidu, which have been under pressure for most of the year. On Tuesday, during a meeting at the G-20 Summit in Bali, President Joe Biden and Chinese President Xi Jinping said that the two nations would have more frequent communications. While acknowledging that the U.S.’s One China policy has not changed, Biden said the U.S. is not looking for conflict with the world’s most populous country. In response, among other Chinese stocks, Baidu stock rose 9%. But the shares are still down 33% year to date, while falling 40% over the past year, trailing the S&P 500 in both spans. China’s own regulatory crackdown on tech companies has been the main reason for Baidu’s decline. China’s SAMR has demanded better corporate governance, anticompetitive practices and improved political posturing, all of which sparked fears among U.S. investors that Baidu’s core marketing business won’t grow as expected, nor will it be able to accelerate its growth in the cloud. Currently trading at around $95, Baidu is heavily discounted relative to its long-term potential, especially amid improved relations between China and the U.S. For any of this perceived value to matter, on Tuesday the company must speak positively about its growth potential for the next year and beyond.
Hewlett-Packard (HPQ) – Reports after the close, Tuesday, Nov. 22
Wall Street expects HP to earn 84 cents per share on revenue of $14.73 billion. This compares to the year-ago quarter when earnings came to 94 cents per share on revenue of $16.68 billion.
What to watch: Hewlett-Packard stock retreated last week following a downgrade by investment firm Credit Suisse, noting that the tech giant could be adversely impacted by macro concerns which could “challenge” the company’s near-term potential. Citing “weakening consumer sentiment” which accounts for more than 50% of the company’s PC revenue, analyst Shannon Cross cut her rating on the stock to Neutral from Outperform. Ahead of the company’s earnings results, Cross noted that HP’s revenue could be pressured not only from slower enterprise demand, but also due to lower average selling prices. “We believe lower demand will likely pressure pricing, which has benefited from shortages, inflation and dollar strength,” Cross wrote in a note to clients. In the last quarter, the company adjusted EPS of $1.04 came in at the low end of HP’s guidance. The company noted on the conference call that price competition pressured its results due to higher channel inventory levels, warning that current quarter might be even more challenging. Currently trading at around $29 per share, HP stock has declined 22% year to date, compared to a 17% decline in the S&P 500 index. The shares have an average analyst price target of $30, suggesting they are now fairly valued relative to expectations. Nevertheless, on Tuesday investors will want to see evidence that HP can navigate through this turbulence and provide strong guidance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.