- PCE inflation data, Fed FOMC minutes, debt ceiling developments in focus this week.
- DICK’S Sporting Goods stock is a buy with earnings beat on deck.
- Nvidia shares set to plunge on big profit drop, sluggish outlook.
Stocks on Wall Street ended lower on Friday, as negotiations to raise the U.S. debt ceiling were put on hold, denting optimism a deal could be reached in time to avert a catastrophic default.
Despite Friday’s downbeat performance, the blue-chip Dow Jones Industrial Average rose for the first time in three weeks, while the benchmark S&P 500 and the tech-heavy Nasdaq Composite posted their strongest weekly gains since March.
For the week, the Dow gained 0.4%, the S&P 500 climbed 1.6%, while the Nasdaq jumped 3%.
The week ahead is expected to be another eventful one as investors continue to assess the outlook for the economy, inflation, and interest rates amid fears over a potential U.S. debt default.
On the economic calendar, most important will be Friday’s personal consumption expenditures (PCE) price index, which is the Federal Reserve’s preferred inflation measure. As per Investing.com, analysts expect both the month-over-month (+0.3%) and year-over-year rates (+4.6%) to remain at elevated levels.
The release of the Fed FOMC minutes on Wednesday will also be watched closely for any discussion on the future direction of monetary policy.
Currently, markets overwhelmingly expect the Fed to pause its monetary tightening cycle at its next meeting in June, with odds for no action standing at 82%, according to Investing.com’s Fed Rate Monitor Tool.
Elsewhere, some of the key earnings reports to watch in the week ahead include updates from Lowe’s (NYSE:LOW), Best Buy (NYSE:BBY), Kohl’s (NYSE:KSS), Costco (NASDAQ:COST), Dollar Tree (NASDAQ:DLTR), Burlington Stores (NYSE:BURL), Zoom Video (NASDAQ:ZM), Palo Alto Networks (NASDAQ:PANW), and Workday (NASDAQ:WDAY) as Wall Street’s Q1 reporting season draws to a close.
Regardless of which direction the market goes, below I highlight one stock likely to be in demand and another which could see further downside.
Remember though, my timeframe is just for the week ahead, May 22 to May 26.
Stock To Buy: DICK’S Sporting Goods
I expect shares of DICK'S Sporting Goods Inc (NYSE:DKS) to outperform in the coming week as the nation’s largest sporting goods retailer’s latest financial results will surprise to the upside in my view.
Despite a shockingly weak earnings report from industry peer Foot Locker (NYSE:FL) late last week, I believe DICK’S will deliver a better-than-expected print when it reports first-quarter earnings ahead of the opening bell on Tuesday, May 23.
As per moves in the options market, traders are pricing in a significant swing of approximately 9% in either direction for DKS stock following the earnings update. After its last earnings report in mid-March, DICK’S jumped 13% higher.
Not surprisingly, an InvestingPro survey of analyst earnings revisions points to surging optimism ahead of the report, with analysts growing increasingly bullish on the sporting goods retailer. Earnings estimates have been revised upward 21 times in the past 90 days, compared to zero downward revisions.
Consensus estimates call for the Pittsburgh, Pennsylvania-based sporting goods store chain - which operates over 850 retail locations across the U.S. - to post first-quarter earnings per share of $3.22, improving 13% from EPS of $2.85 in the year-ago period.
Meanwhile, Q1 revenue is forecast to rise roughly 4% year-over-year to $2.8 billion thanks to solid demand growth across its athletic apparel and footwear product categories.
Despite a difficult environment for retailers, DICK’S has beaten Wall Street’s profit and sales expectations for 11 straight quarters, a testament to the strength and resilience of its underlying business, its loyal customer base, as well as strong execution across the company.
As such, it is my belief that DICK’S management will provide upbeat guidance to reflect continuing positive tailwinds, including a disciplined inventory approach, and robust customer demand for sports and recreation clothing and equipment.
DKS stock ended Friday’s session at $126.67, the lowest close since Jan. 27. At current levels, DICK’S has a market cap of about $10.8 billion, making it the most valuable sporting goods retail chain in the U.S.
Shares of the athletic-gear retailer are up +5.3% year-to-date, much better than the -1.6% decline suffered by the SPDR® S&P Retail ETF (NYSE:XRT), which tracks a broad-based, equal-weighted index of U.S. retail companies in the S&P 500.
InvestingPro currently has a 12-month price target of about $155 for DKS shares, implying more than 22% upside ahead, making it a smart time to buy.
Stock To Sell: Nvidia
I believe Nvidia's (NASDAQ:NVDA) stock will suffer a disappointing week ahead as the tech giant’s highly anticipated first-quarter earnings report will likely reveal a sharp slowdown in both profit and sales growth.
Nvidia’s Q1 earnings per share are expected to be $0.91, a decline of 33.1% from a year ago, according to InvestingPro data. Meanwhile, revenue is forecast to shrink 21.4% annually to $6.51 billion.
Ahead of the report, analysts have lifted EPS estimates upward a net of 15 times in the last 90 days, however profit expectations overall are down by nearly 40% in the same timeframe despite a massive rally in shares in the run-up into the print.
Options trading implies a 7% swing up or down when the Santa Clara, California-based company spills numbers after the U.S. market close on Wednesday, May 24.
In my opinion, Nvidia is undoubtedly the most overhyped stock in the entire market right now as it approaches bubble-like valuations.
Shares have soared 114% to start 2023, rising alongside spiking interest in Artificial Intelligence (AI) advancements. Even more mind-boggling, NVDA stock has nearly tripled from its October 2022 bear-market low of $108.13.
NVDA stock rose to its best level since December 9, 2021, on Thursday, nearing its record high just above $346; shares ended at $312.64 on Friday, giving the chipmaker a market cap of a whopping $773 billion.
The mammoth AI-inspired rally has left shares extremely overstretched and overvalued, making them vulnerable to a post-earnings plunge.
Indeed, InvestingPro data shows that the Jensen Huang-led company now trades at an exceptionally high 29 times sales and 66 times forward earnings, which is twice its historical market-determined fair value.
Not surprisingly, the InvestingPro ‘Fair Value’ for NVDA stock points to a potential downside of nearly 33% from Friday’s closing price.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.