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1 Stock To Buy, 1 To Dump When Markets Open: McDonald’s, Robinhood

By (Jesse Cohen/ MarketsJan 23, 2022 20:32
1 Stock To Buy, 1 To Dump When Markets Open: McDonald’s, Robinhood
By (Jesse Cohen/   |  Jan 23, 2022 20:32
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Stocks on Wall Street plunged in risk-off trade on Friday, with the NASDAQ Composite suffering its worst weekly loss since 2020, pushing the tech-heavy index further into correction territory.

In fact, the NASDAQ is off to its worst start to a year since 2008, tumbling 12% so far in January amid a broad selloff in many top-rated technology stocks. The index now stands 15% below its all-time high.

NASDAQ Composite Daily Chart
NASDAQ Composite Daily Chart

This week we'll see Q4 earnings season kick into high gear, with reports expected from mega-cap tech stocks, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Tesla (NASDAQ:TSLA), and Intel (NASDAQ:INTC).

Not to be outdone, additional high-profile companies, such as Johnson & Johnson (NYSE:JNJ), Boeing (NYSE:BA), Caterpillar (NYSE:CAT), General Electric (NYSE:GE), Visa (NYSE:V), Mastercard (NYSE:MA), AT&T (NYSE:T), Verizon (NYSE:VZ), Chevron (NYSE:CVX), and Nucor (NYSE:NUE) will also be releasing their latest earnings results.

To top it all off, we'll see fourth quarter growth data, plus hear from the Fed as it holds its latest monetary policy meeting with subsequent press conference, making it a busy week indeed.

Regardless of which direction the market goes, below we highlight one stock likely to be in demand in the coming days and another which could see fresh losses.

Remember though, our timeframe is just for the week ahead.

Stock To Buy: McDonald’s

McDonald’s (NYSE:MCD) stock could see increased buying activity this week, as investors await the latest financial results, due for release before the opening bell on Jan. 27, from one of the world’s largest restaurant chains. Consensus expectations call for the Chicago, Illinois-based fast-food giant—which has topped Wall Street estimates for three consecutive quarters—to post Q4 earnings per share of $2.34, rising 37.6% from EPS of $1.70 in the year-ago period.

Revenue is forecast to climb 13.5% year-over-year to $6.03 billion, benefitting from higher menu prices, a successful digital loyalty program, as well as unique marketing promotions which boosted consumer demand for its iconic lineup of ‘Big Mac’ burgers and chicken ‘McNuggets.’

As such, market players will focus on the company’s U.S. same-store sales, which track sales at stores open for at least 12 months, after the key metric grew by 9.6% in the previous quarter.

Outside the U.S., international same-store sales are expected to improve from a year ago, when they increased 12.7%, as consumers flocked back to the fast-food chain’s physical restaurants amid easing COVID-19 restrictions.

Beyond the top- and bottom-line numbers, McDonald’s outlook for the months ahead will be in focus as the chain deals with worries surrounding higher labor, commodity, and transportation costs, as well as staffing shortages.

Fast-food chains are being closely watched for their ability to pass on inflation costs to consumers.

MCD Daily Chart
MCD Daily Chart

MCD touched an all-time high of $271.15 on Jan. 4; it ended Friday’s session at $254.59. At current levels, the fast-food restaurant chain has a market cap of $190.2 billion.

Despite losing 5% since the start of the year, McDonald’s stock has outperformed other notable names in the sector, such as The Wendy’s Co (NASDAQ:WEN), Burger King-parent Restaurant Brands International (NYSE:QSR), and Yum! Brands (NYSE:YUM), which owns KFC and Taco Bell.

Not surprisingly, 27 out of 37 analysts surveyed by rate the stock as “outperform,” implying an almost 8% upside from current levels with a 12-month price target of $274.55/share.

MCD Consensus Estimates Chart
MCD Consensus Estimates Chart


Stock To Dump: Robinhood Markets

After correctly predicting a couple of weeks ago that Robinhood Markets (NASDAQ:HOOD) stock will break down to new lows, shares are expected to suffer another challenging week as investors brace for disappointing financial results from the beleaguered trading app.

Consensus estimates call for the struggling Menlo Park, California-based stock market-trading platform to post a loss of $0.37 per share on revenue of $374.8 million when it reports fourth quarter numbers after the closing bell on Thursday, Jan. 27.

The fintech company warned that lower retail trading activity and seasonal headwinds would likely persist into year-end when it released weaker-than-expected Q3 financial results in October.

Based on moves in the options market, traders are pricing in a big move for HOOD shares following the results, with a possible implied move of about 17% in either direction.

Another potential cause for concern is what insiders plan to do with their shares after a lock-up period that prevented them from selling equity following the company’s IPO last year ends on Tuesday, Jan. 25. If they were to sell even a fraction of their holdings, it could put large technical selling pressure on Robinhood’s stock.

HOOD Daily Chart
HOOD Daily Chart

HOOD started trading on the New York Stock Exchange at $38 following a much-hyped IPO in July 2021. It closed at a record low of $12.98 on Friday, nearly 85% below its record high of $84.12 touched on Aug. 4. At current levels, the financial services company has a market cap of $11.1 billion.

Year-to-date, Robinhood stock has tanked, -26.9%, as investors dumped shares of unprofitable technology companies amid rising rates due to the Federal Reserve’s plans to tighten monetary policy at a faster pace than previously expected.

Yet, despite recent losses, HOOD stock still appears to be overvalued according to InvestingPro models and could see a decline of 25% to its fair value of $9.70 a share.

HOOD Fair Value Chart
HOOD Fair Value Chart

Source: InvestingPro

Taking this into account, shares of the stock-and-crypto trading app will likely remain vulnerable to sharp swings in the days ahead.

1 Stock To Buy, 1 To Dump When Markets Open: McDonald’s, Robinhood

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1 Stock To Buy, 1 To Dump When Markets Open: McDonald’s, Robinhood

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