For Immediate Release
Chicago, IL – March 18, 2020 – Zacks Equity Research highlights Cloudera CLDR as the Bull of the Day and Diamondback Energy FANG as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Microsoft MSFT, Facebook FB and Alibaba BABA.
Here is a synopsis of all five stocks:
Tough to find optimism in this brutal market. The Fed and the Treasury are already taking dramatic steps to backstop credit markets and the economy. It may feel like there is no end in sight to the selling and nowhere to hide. This may end up being one of the best buying opportunities of the decade. Rather than blinding buying any stock off a significant percentage off the highs, investors can lean on the Zacks Rank to find stocks with the strongest earnings trends. Stocks which are Zacks Rank #1 (Strong Buy) stocks have seen recent earnings estimate revisions to the upside, meaning there is plenty of room to grow.
Once such stock is today’s Bull of the Day, Cloudera. Cloudera, Inc. provides a suite of data analytics and management products in the United States, Europe, and Asia. The company operates through two segments, Subscription and Services. It offers Cloudera Enterprise Data Hub that allows companies to execute various analytic functions against a shared set of governed and secures data in public and private clouds, and data centers; Cloudera Data Warehouse, a hybrid cloud solution for self-service analytics; Cloudera Data Science and Engineering enables users to streamline, simplify, and scale big data processing; and Cloudera Operational DB that enables stream processing and real-time analytics on continuously changing data.
Over the last thirty days, several analysts have been increasing their earnings estimates on Cloudera. This is underpinning a strong trend in the business. Seven analysts have increased their EPS numbers for the current year while three have followed suit for the next year. The moves have pushed up the Zacks Consensus Estimate for the current year from a 3-cent loss to a 19-cent profit. Next year’s number has pushed up from 11 cents to 36 cents.
In a normally functioning market, this would have resulted in some upside action for the stock price. However, the war on higher beta stocks, with money moving to safety has put this stock on the defensive. Shares are off from a high over $12 to start the year to lows down under $7. When the market finally does normalize, stocks with strong trends like this have a good chance of recovering.
I suppose you really don’t need me to point out any sort of Bear of the Day for you with so many stocks under pressure. It’s upsetting, even to the most seasoned stock market vets. Still, there are concerning earnings trends that need to be brought to light. It is the Zacks Rank which helps uncover these earnings trends. Zacks aggregates earnings estimates from all over Wall Street and uses these numbers to find stocks with the strongest, and the weakest trends. Stocks with the weakest earnings trends fit into the notorious Zacks Rank #5 (Strong Sell) category.
Today’s Bear of the Day is Zacks Rank #5 (Strong Sell) Diamondback Energy. Diamondback Energy, Inc., an independent oil and natural gas company, focuses on the acquisition, development, exploration, and exploitation of unconventional and onshore oil and natural gas reserves in the Permian Basin in West Texas. It primarily focuses on the development of the Spraberry and Wolfcamp formations of the Midland basin; and the Wolfcamp and Bone Spring formations of the Delaware basin, which are part of the Permian Basin in West Texas and New Mexico.
Oil prices remain under pressure as an all-out supply war wages between the Saudis and Russians. During the March 17th trading session, crude prices came down to under $27 per barrel. That’s obviously put oil production and exploration companies behind the eight ball. This disturbing trend began weeks ago, with analysts already revising their numbers to the downside.
Over the last sixty days, twelve analysts have lowered their earnings estimates for the current year, while seven analysts have dropped their numbers for next year. The negative revisions have had a drastic impact on our Zacks Consensus Estimate. The current year number has come down from $9.24 to $7.44. Nest year’s number has dropped from $9.70 to $8.37.
To be fair, eventually the valuations here have to become attractive. There is still earnings growth forecast year-over-year for next year. Current P/E is all the way down at 3.16x. That’s below the industry average of 5x and well below the market’s average of 14.64.
Calling a Bottom
The markets just experienced the 2nd worst day in 124 years on Monday (March 16th). The VIX (fear index) closed at its highest level since it was incepted in the 80s. This past month the stock market experienced the most rapid crash in history.
The S&P 500 plummeted roughly 30% from its highs last month. It will likely continue to slide until we see some positive headlines on either substantial fiscal stimulus or a rapid decline in new coronavirus cases.
President Trump addressed the nation during the last 30 minutes of the trading day on Monday and said that this virus could be an issue until July or August. This further escalated the market’s recession fears. If this pandemic becomes a multi-quarter issue, this will undoubtedly incite a global recession. The Dow tumbled a historic 3,000 points into Monday’s close.
The markets are already pricing in the worst-case scenario. During the financial crisis over a decade ago, the market declined around 55% from their highs over the course of 1.5 years. The major indexes are all more than halfway there in just one month.
The market’s record dive speed is due in part to algorithmic trading models that have taken over the financial markets. Computers are assessing risk and making hyper-fast trades based on these formulas autonomous. This autonomous computer-driven trading is what led to the flash crash in 1987 when these immature programs weren’t correctly calibrated and crashed the markets. Today these programs are much more sophisticated and are quickly calculating risk/returns scenarios and making trades of this in real-time.
At this point, the markets are seeing a recession as a forgone conclusion. The S&P 500 is 30% off its recent highs, the Fed dropped interest rates to zero, and our overly bullish president proclaimed that this pandemic might have a longer timeline than initially anticipated.
The good news here is that we are already pricing in the worst-case scenarios, and the market may not have much more room to fall even if a recession was imminent.
The 2008 financial crisis was a systemic issue with our economic structure that had long-term rippling effects on every corner of the economy. The novel coronavirus is only creating short-term problems that should quickly resolve themselves once the virus is controlled, and business is able to resume as usual.
Calling A Bottom
Traders are always trying to call a bottom and a top to every market scenario, and the few that accurately predict these levels accomplish it with little more than luck. We could pontificate when this bottom will be hit, but the most productive thing you can be doing with your cash right now is to begin buying high-quality blue-chip stocks at discounted levels. Like I said, we are trading at a 30% discount to what we saw just a month ago, and the stock market will recover as it always has. Now is the time to start upgrading your portfolio, and price averaging down on the market’s top stocks is going to be the most effective strategy.
I am looking at companies with healthy balance in industry that are not going to be substantially affected by this virus. The stocks that I am looking at include Microsoft, Facebook and Alibaba.
Volatility in the markets is at a high, and so is uncertainty. I suspect that this volatility is here to stay until this pandemic can be controlled. The coronavirus is still picking up steam with 163 countries effected and 15 with over a thousand reported cases. There are still likely thousands of unreported cases out there.
The extreme measures that are being taken combined with the approaching spring gives me confidence that this virus could be under control within the next couple of months. The two potential “bottom triggers” that I am looking for are a substantial fiscal stimulus and a sizable decline in new COVID-19 cases.
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