Weekly Outlook: The market has started to form some cracks, and this past week, the stock market started to drop on the back of weak economic data for March as well as mixed earnings. With the market as high as it is right now, data/earnings/news need to be very solid to continue to allow for further upside. This coming week, things will revolve around a large slate of important earnings as well as several key economic data points. Earnings have been mixed so far, and they will need to show better guidance for the rest of 2013 to continue to see more upside in the market. With hundreds of companies reporting this week, it should be a very busy week for the market.
Economic data will take a backseat to earnings this week, but there are still quite a few important reports to watch this week. Existing Home Sales are reported on Monday followed by New Home Sales on Tuesday. Housing data is crucial to the market's success. New Home Sales will be very important on Tuesday. Expectations are for an annualized rate at 415K versus last month's 411K reading. On Wednesday, the market gets Durable Orders and Crude Inventories. Thursday will bring about Jobless Claims. That report continues to be a crucial one as the state of unemployment has become a concern leading to the decline in the market. Friday will also be important with GDP coming in at 2.8% for Q1. That report will be very important because a lot of recent reports show weakness at the end of the quarter. Some interesting reports this week to watch, but the key is still earnings. GDP will be crucial to the end the week. A miss there could cause some turmoil for sure.
Outside of the USA, we have some interesting reports to watch. On Monday, we get a key Euro-Zone Consumer Confidence report. Tuesday is the important day with the HSBC Flash Manufacturing PMI report for China as well as Euro-Zone, French, and German Purchasing Manager Index reports. On Wednesday, we get the German IFO business climate reports, which are very important to gauge the climate there, which has started to show some signs of change. On Thursday, we get the Great Britain GDP report followed by the Bank of Japan rate decision on Friday. There are a lot of interesting reports out of international markets. The key ones to watch are the HSBC Flash Manufacturing report as well as any news out of Japan on Friday.
Earnings, though, are the key to the week. Just to give you an idea of how many important earnings there are this week - there are twenty companies reporting earnings this week with a market capitalization of $50B or higher. Here are some of the highlights: ExxonMobil (NYSE:XOM), Apple (NASDAQ:AAPL), Procter & Gamble (NYSE:PG), AT&T (NYSE:T), Amazon.com (NASDAQ:AMZN), Qualcomm (NASDAQ:QCOM), and many more. With so many reports this week, the market will need to see some optimism for the rest of the year as well as good results from Q1. If companies show more signs of weakness, it could be a long week for stocks.
The Federal Reserve will be out of the mix for the week besides the Chicago, Richmond, and Kansas City reports due out Monday, Tuesday, and Thursday, respectively. The reports, though, will have minimal impact.
So where are we headed this week?
It's definitely one of those weeks where it's hard to tell, and it all depends on what's reported. If we get strong reports from data and earnings, we can easily reverse from last week as the market did not really lose any key levels. At the same time, we have a lot of risk of losing key support at 1500-1525 on the S&P 500 (NYSEARCA:SPY). If we do lose those levels, it could be very bad news for the market. The Nasdaq (NASDAQ:QQQ) will have a very important week with Apple reporting. AAPL has been a major drag on the QQQ over the past several weeks. If it falters more this week, things could go very sour.
Stocks To Trade:
Intel looks pretty solid after their latest quarterly report. While the report was in no way extremely strong, it did shed some positive lights on the chip company. The PC market is pretty dismal right now. In Q1 of 2013, PC shipments declined 14% year/year. INTC, though, only saw a 3% decline in sales. The company was helped by its data center group, which saw a 7% increase in sales. The company's data center offerings are an important part of the company's future with data storage continuing to grow as more and more of the world becomes digital and moves towards cloud-based offerings. INTC, additionally, is improving its data center offerings with new, innovative designs. The company believes that PC demand can rebound, and they are trying to increase their mobile offerings as well. The report, all in all, was better than many had expected it would be, and the company sounded quite optimistic all in all.
Moving forward, though, with PCs never likely coming back, what about INTC's future? We believe that the mobile market (phones and tablets) will continue to grow, and with price points below desktops/laptops, the company can actually sell more of these products, more easily grow in new markets, and can sell higher quantities per person. The company is making strides in the mobile market, and that needs to continue to be a focus for the company. From Forbes:
Intel recently launched Clover Trail+ processor, its first dual core chip for smartphones and Android tablets, that delivers double the performance and up to three times the graphics capabilities compared to its predecessor, the Medfield platform. The company is winning additional designs with the new processor and is on track to ship the next generation Merrifield platform by the end of 2013.The company recently introduced one of the industry's smallest and lowest-power multimode-multiband LTE solutions (XMM 7160) that supports smartphones, tablets and ultrabooks. It currently ships the single-mode 4G LTE data solution and remains on track ship multimode voice and data LTE baseband solutions by the end of this year.
While many expected the worst for INTC, the company delivered fairly decent results, and we believe that the company is making the right strides towards its future. With that said, it's a great time to buy INTC. The company trades with an 11 future P/E and price/sales at 2.1. We look for value under 15 on future P/E and under 3 on price/sales. We believe the stock can really get moving on a break of 22.50.
Trade: INTC, Long
Max Gain: 8%
Another stock looking very solid that we like moving into its earnings report is Visa. Last week, we got solid results from American Express (NYSE:AXP). The company saw a 6% increase in billed business year/year despite concerns of consumer spending slowdowns due to higher taxes and sequestration. Thus far, the credit market has not slowed. We believe this news bodes well for Visa, which has seen shares decline as of late. On top of the positive news from AXP, consumer credit data has been very strong for February and January. In those two months, credit expanded $18B and nearly $13B, respectively. A healthy appetite to use credit is obviously a positive for V, but what's interesting is that it's almost even more important for V that people make transactions. The company makes money off of every transaction as well as off potential late fees and interest payments.
Right now, expectations are for over 10% increase in sales and over 12% increase in earnings. Both rates are very solid for the company. Further, shares have been weak as of late. After improving 10% over the first three months of the year, shares have dropped about 4% since the beginning of the month. We believe this slight pullback is giving an opportunity into earnings. Value is definitely not the reason to buy V with future P/E nearing on 20, but Visa is the #1 way to pay for things in many nations. On top of solid growth, the company does offer a light dividend at close to a 1% yield.
Watch V this week. It could be ready to bounce back to 170 into earnings.
Trade: V, Long
Buy Point: Over $165
One stock we are bearish on moving forward is Activision Blizzard. The video game industry just is not what it once was. Games are not selling at the same rates any longer with the popularity of mobile games and applications for new tablets and phones. ATVI is looking for about 20% growth in revenue year/year with around 80% growth in earnings year/year. Obviously, those levels sound very enticing, but we see some issues for ATVI. First off, the company has very little mobile exposure currently. They have only one title on Android, which is a big drawdown for the company.
As console growth slows, companies need to move into mobile/tablets. Gamestop (NYSE:GME) understood that and has pushed a digital download section of their company as well as adjusted revenue sources to other areas as well. ATVI, additionally, may hit a lull here for a bit in new titles. The new edition of Skylanders won't be out until the Fall and there is no announcement of the new Call of Duty release yet for Modern Warfare 3. The company has had success with CoD and Skylanders, but we believe that the continued repetition of CoD games will start to lose interest at some point.
Another plus for ATVI may be the release of new Xbox and Playstation consoles, but those are not out as well until the Winter. With a Summer lull coming for new developments, we believe ATVI has limited catalysts for more upside. The stock has good support at $14, but if that fails, the stock could decline hard.
Another issue to watch for is that some politicians want to push for regulations on video games with violence after recent shootings in schools and throughout the country. Any regulation to this would also be very hurtful to ATVI. With nothing new planned for several months, it's hard to imagine much upside. We would avoid ATVI for now.
Trade: Avoid ATVI