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Micron, Applied Materials, and Analog Lead Stocks Higher, Walmart Lags
The S&P 500 managed to eek out a slight gain for the week of about 60 bps. But it was the semiconductor sector ($SOXX) that stole the show, jumping by over 2.15 percent. The broader Technology sector ($XLK) finished in a distant second place up roughly 1.5 percent. Consumer staples where by far the worst performing group down by over 1.8 percent.
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When we look at the different stocks in the chip sector, we can see that Micron was the best performer up by nearly 7 percent, followed by Analog Devices, and Applied Materials.
Micron shares jumped by nearly 5 percent on Friday alone, and the options activity was also pretty substantial. Almost 12,000 of the March 16, $47 calls traded on Friday, along with another 9,000 calls at the $50 strike, while 17,000 of the April $50 calls traded as well. The notional value was nothing overwhelming, with the March $47 calls trading at roughly $1.50 per contract, giving the contracts that trade a dollar value of about $1.8 million. The April 50’s trade at roughly $1.90 giving the contracts traded a dollar value of about $3.2 million.
The stock cleared the multi-month downtrend, moving up to resistance at $46.80. If the price rises above $46.80 it has a clear shot to reach its old highs near $50.
Analog Device got an upgrade from Bernstein boosting Analog’s price target to $105 from $90. Meanwhile, RBC noted that Analog could be among a list of companies that Broadcom may look at should the Qualcomm deal be killed.
The chart is nothing to get excited about, as the stock has been relatively choppy recently. Although there is a noticeable uptrend, there is nothing in the pattern to suggest that stock is going to rocket higher anytime soon, but seems worth watching at this point.
Applied Materials is in a vital spot, fail at resistance, $55.50, or breakout and rise. Options active is pretty muted in the name.
But analysts are looking for significant growth this year, with revenue expected to climb by nearly 21 percent to $17.51 billion, while earnings are expected to soar by almost 36 percent to $4.43 per share. But earnings growth is seen coming to a halt in 2019, to only 5 percent, while revenue is expected to grow by 6.5 percent. The average price target on the stock is $68.91, according to Ycharts, giving the stock upside potential of about 21 percent.
The stock is trading at only 12 times 2019 earnings, which seems cheap enough. But the 2019 earnings growth rate of 5 percent, is concerning, especially given the 6 percent revenue growth. It could suggest that analyst are expecting costs to rise next year, and margin compression. When it comes to chip stocks, the market does not like margin compression. It is something you have to consider, and pay close attention too.
Until this one makes a clear technical breakout or fails on the charts, the stock is a toss-up.
Consumer Staples performed the worst of all sectors in the stock market this past week. It should come as no surprise with Walmart down by over 10 percent for the week, while General Mills fell by 7 percent, and Kraft Heinz falling by 5 percent.
It seems that suddenly that e-commerce juggernaut, Walmart, is not what was first thought. First off, e-commerce growth fell during the fourth quarter to 23 percent, from 50 percent in the third. But it is also obvious now, that Walmart’s e-commerce ambitions are going to take a long time before they become meaningful. The company noted total sales over the past year were about $11.5 billion, out the roughly $500 billion in total revenue the company had. The e-commerce sales represented only 2.3 percent of total sales. Suddenly it makes what was previously perceived as significant growth in e-commerce for Walmart is suddenly not so impressive or important.
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Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
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Tags: #sp500 #stocks #chips #semiconductors #micron #analog #applied #materials #devices #walmart #consumer #technology