The second week of July kicked off the first major reports as we swing into earnings season, with JPMorgan Chase, Goldman Sachs, and PepsiCo all reporting significant growth that outpaced Wall Street estimates.
But in the rest of the market, news was rather mixed after the Labor Department reported that inflation is rising at its fastest pace in nearly 13 years.
Thanks to skyrocketing prices in largely pandemic-affected markets such as used vehicles, food, energy, and transportation, the June consumer price index jumped an astonishing 0.9%. Year-over-year, that comes out to a 5.4% increase in headline CPI as supply-chain bottlenecks, high demand, and an abysmal prior year by comparison jack up a reopening economy. A superheated housing market is doing nothing to quell the economic surge.
That said, it’s a great time to be many of today’s trending stocks after the week opened with all three major indices once again soaring to record highs – despite rumbling undertones of inflation worries in the Fed and the broader markets.
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Microsoft Corporation (MSFT)
Microsoft Corporation closed up 1.3% to $280.98 per share on Tuesday on volume over 26.1 million trades. The stock is up 26.3% for the year and well over the 22-day average of $268.66. Currently, Microsoft Corporation is trading over 35x forward earnings.
Microsoft is trending this week after its rollout of Windows 365. This new service gives organizations’ employees access to a virtual, cloud-based PC running Windows operating system – even if they’re running non-Windows devices, such as Apple or Android PCs or tablets. The system runs on Microsoft’s Azure Virtual Desktop (formerly Windows Virtual Desktop), which surged in popularity during the pandemic.
This news comes after the Department of Defense last week cancelled Microsoft’s $10 billion cloud contract – a contract that has been at the heart of a legal battle between Amazon and Microsoft since it was awarded. Instead, the Pentagon is launching a new multivendor cloud computing contract and accepting proposals from Microsoft, Amazon, and likely outside bidders in the coming weeks.
In the last fiscal year, Microsoft’s revenue ballooned to $143 billion, coming in a hefty 45% above the $110 billion seen three years prior. Meanwhile, operating income soared 83% to $53 billion compared to just $35 billion, and per-share earnings leapt nearly 245% to $5.76 in the last fiscal year compared to $2.13 three years ago. In the same period, return on equity surged over double to 40%.
At this time, Microsoft is expected to see around 8.7% revenue growth in the next 12 months. Our AI rates this investment prospect positively overall, with As in Low Volatility Momentum and Quality Value and Bs in Technicals and Growth.
Delta Air Lines (DAL)
Delta Air Lines plummeted 3.6% to $41.33 per share by Tuesday’s close, ending the day with 14.6 million trades on the books. The stock is up 2.8% for the year, though trending below the 22-day average of $44 and change. Delta Air Lines is trading at 16.7x forward earnings.
Delta is trending this week after the company released its Q2 earnings on Wednesday and posted its first quarterly profit since 2019 (coming in at $652 million) thanks to federal payroll aid. Delta also reported revenue of $7.13 billion and an adjusted EPS loss of $1.07 after stripping out the $1.5 billion it received in federal payroll aid.
Moreover, Delta management noted that it expects to be profitable in the latter half of the year without aid – though Q3 revenue may still 30-35% from 2019 levels. The airliner credits future potential earnings to steadily increasing domestic leisure and corporate travel bookings.
Still, Delta has a long way to climb before its balance sheet returns to anything approaching “normal.” In the last three fiscal years, the company’s revenue plunged from $44.4 billion to just $17.1 billion, even as operating income soared from $5.5 billion to $9.2 billion. Per-share earnings and ROE both skyrocketed as well, coming in at $19.49 and 147%, respectively.
Currently, Delta Air Lines is expected to see forward 12-month revenue growth around 29.3%. Our AI rates the company poorly overall: D in Technicals and F in Growth, Low Volatility Momentum, and Quality Value.
The Boeing Company (BA)
The Boeing Company plunged 4.2% Tuesday to $228.20 per share on the back of 21 million trades, ending the day more than $12 below the 22-day price average. The stock remains up around 6% for the year as it trades around 166x forward earnings.
Boeing’s sudden drop came after the aircraft maker announced that it’s slashing delivery targets for its undelivered 787 Dreamliner jets to less than half of those already produced but still on the lot. The company is also temporarily shifting production below its current rate of five planes per month after the U.S. Federal Aviation Administration noted unacceptable defects around the forward pressure bulkhead of some of its wide-body jets.
This bad news comes after the struggling plane manufacturer reported last month that it would deliver the “lion’s share” of roughly 100 Dreamliners still in its inventory. At the time, Boeing had just received FAA clearance to begin fixing electrical defects in another line of aircraft, the oft-embattled 777 MAX.
Good news couldn’t come soon enough for this grounded aircraft manufacturer, as the company’s revenue has been kneecapped to just $58 billion in the last fiscal year compared $101 billion three years prior. Operating income has suffered as well, dropping from $11.8 billion to $8.66 billion – though per-share earnings jumped from $17.85 to $20.88 in the same period.
Still, Boeing is expected to see 7.5% revenue growth in the next 12 months. At this time, our AI rates this company C in Growth, D in Technicals, and F in Low Volatility Momentum and Quality Value.
Mastercard, Inc (MA)
Mastercard, Inc jumped 2.2% on Tuesday to $383.71 per share, closing out the day with 5.16 million trades on the books. The stock is up 8% for the year and trading over 45x forward earnings after climbing over $7 per share again on Wednesday.
Mastercard made our trending list just yesterday after the credit card giant announced a new partnership with Verizon to accelerate 5G contactless payment innovation. The end goal of the collaboration is to bring customers and small- to medium-sized businesses the same opportunities that companies such as Amazon Go already enjoy.
Unfortunately, Mastercard made our trending lists again for a different reason entirely: an indefinite, country-wide ban on new domestic credit and debit lines, courtesy of the Reserve Bank of India. The ban is the latest move from India in a battle over 2018-enacted data storage rules, which states that payment data must be stored on servers exclusively located in India to provide regulators “unfettered supervisory access” to transaction details.
And while the ban won’t affect current India-based Mastercard customers, the company will feel the effects going forward as it’s cut off from growth in one of its key markets.
In the last fiscal year, Mastercard’s revenue has grown around 3.3% to $15.3 billion compared to $14.95 billion three years prior. Operating income has slipped from $8.4 billion to $8.16 billion in the same period, while per-share earnings jumped 16% to $6.37 from $5.60. Meanwhile, return on equity fell from 106% to 102.5%.
Currently, Mastercard is expected to see forward 12-month revenue growth around 4.8%. Our AI rates this card giant just above average, with Bs in Low Volatility Momentum and Quality Value and Cs in Technicals and Growth.
Wells Fargo & Company (WFC)
Wells Fargo & Company nicked down 2.1% on Tuesday, trading 25.4 million shares down to a final price of $43.23. The stock is up 43.2% for the year and trading at 13x forward earnings.
Wells Fargo is trending this week thanks to its Wednesday Q2 earnings report that topped Wall Street expectations – despite a moratorium on increasing their balance sheet beyond the $2 trillion asset cap set by the Federal Reserve way back in 2018. The beleaguered banking giant reported $20.27 billion in revenue and an adjusted EPS of $1.38.
That said, CEO Charlie Scharf noted in a press release that “the headwinds of low interest rates and tepid loan demand remains” in the face of its considerable earnings. Moreover, Wells Fargo made the controversial decision last week to shutter all personal lines of credit to focus on credit cards and personal loans instead.
Over the last three fiscal years, Wells Fargo’s revenue has plunged from $84.7 billion to just over $58.3 billion. Operating income plummeted to less than 10% of its three-year-ago profit, coming in at just $2.1 billion compared to $28.5 billion. And per-share earnings have fallen drastically from $4.28 to $0.41, while return on equity bottomed out at 1.9% against 11.3%.
All told, Wells Fargo is currently rated poorly by our AI, with a B in Low Volatility Momentum and Ds in Technicals, Growth, and Quality Value.
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