this week's stock picks

Last week saw plenty of volatility, with a selloff in China, crisis talks in Greece, and a technical glitch on the NYSE, which shut down the exchange for more than three hours.

You would think then, that stocks would have had a rough ride. Well Yes and no. The CBOE Volatility Index (VIX) did indeed move higher, touching it’s highest level since February, but the S&P 500 Index managed to finish roughly where it started and is still only a few percent away from its all-time highs.

Thanks to intervention from the Chinese government and the prospect of agreement in Greece, the biggest headline risk to the markets seems to have receded slightly. Looking ahead, traders will now be more concerned over upcoming earnings reports, as well as Janet Yellen’s semi-annual testimony to Congress on Wednesday.

Looking at the week’s upcoming earnings, the bar has most definitely been set lower than par, with analysts expecting a poor quarter, the consequence of a stronger dollar and a weaker economy. Analysts at FactSet, for example, have earnings as down 4.4% on a yearly basis and make the comment that “reality will finally take down the market”. This analysis is shown in the below graphic:

factset earnings analysis

Of course, the positive aspect of all this is that since the bar has already been set so low it will be easier for stocks to beat expectations. As a result, and with positive price action intact, we continue to be bullish.

Here are this week’s picks:

Marwood Value

Commercial Metals Company $CMC

Commercial Metals Company is a steel and iron business from the USA that recycles, manufactures, fabricates, and trades steel globally. The stock took a dive last week as turmoil in China hit caused fears over the demand for raw materials and metals.

However, CMC shares bounced sharply off the $15 area and should continue to advance this week as China shares pare losses. The stock pays a dividend of 3% and was selected by the Marwood Value Investing System, a long-term strategy that shows an annualised return of 21.62% in back-testing. The stock is also given 19% upside according to the average of current analyst ratings.

commercial metals company

Trend Followers

Walgreens Boots Alliance $WBA

Walgreens reported strong numbers last week which saw shares gap higher two days in succession. Company earnings per share came in at $1.02, 23% higher than the previous year, while top line revenue grew almost 50%.

The firm also reported the purchase of UK company Liz Earle Beauty from Avon products for around $215 million and simultaneously upgraded it’s earnings expectations for the rest of the year.

Overall, there is a lot of positive sentiment surrounding this company and positive price action will have attracted the attention from trend followers. Shares could easily float higher this week.

wba stock chart

Small Cap Discretion

Corcept Therapeutics $CORT

Corcept Therapeutics is a $600 million biotech stock leading development into drugs that regulate the effects of cortisol in the body. This research has led to the discovery of new compounds that could ultimately change the way we treat many life-threatening illnesses.

Shares in $CORT are down 12% on the month but are still in a upward trend and very close to a support level at $5.50. The stock has a high level of bullish optimism and could advance from here.

corcept therapeutics stock

Short Sellers

Sina Corporation $SINA

Chinese Internet company Sina showed volatile price action last week as Chinese shares continued to plunge. Towards the end of the week, the stock joined the overall market in moving higher but could not sustain those gains and finished near the lows in a bearish engulfing candle pattern.

Long-term, Chinese equities look attractive but on a short-term basis we could see more volatility and Sina does not have much optimism from traders at the present time.

sina corporation

Disclosure & Disclaimer: Please read the full disclaimer and be aware of the usual risks to trading in financial instruments. Please remember the importance of doing your own research and understand the cost to trade including trading commissions and the bid:ask spread. I am long CORT.


 

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