- U.S. inflation data, more earnings, midterm elections in focus
- Occidental Petroleum stock is a buy ahead of explosive earnings
- Palantir set for losses amid slowing profit, sales growth
Stocks on Wall Street rallied on Friday, but the major indices still finished the week lower after Federal Reserve Chair Jerome Powell hinted that interest rates will move higher and stay there longer than previously anticipated.
The blue-chip Dow Jones Industrial Average fell 1.4% to snap a four-week winning streak, the benchmark S&P 500 declined 3.4%, and the tech-heavy Nasdaq Composite sank 5.7% for its biggest weekly percentage drop since January.
Source: Investing.com
Market focus now shifts to key U.S. CPI inflation data due next week, with annual consumer prices expected to jump by 8.0% in October after an 8.2% increase in September.
Elsewhere, the corporate earnings season continues, with Walt Disney (NYSE:DIS), Rivian Automotive (NASDAQ:RIVN), Nio (NYSE:NIO), Lyft (NASDAQ:LYFT), Roblox Corp (NYSE:RBLX), Beyond Meat (NASDAQ:BYND), and AMC Entertainment (NYSE:AMC) among some of the notable reporters.
In addition, the U.S. midterm elections on Nov. 8 will grab attention. Political analysts believe the Republicans will gain control of the House of Representatives, which should lead to more gridlock and a potential slowdown for some of President Biden's agenda.
Regardless of which direction the market goes, below we highlight one stock likely to be in demand and another that could see further downside.
Remember, though, our time frame is just for the upcoming week.
Stock To Buy: Occidental Petroleum
I expect shares of Occidental Petroleum (NYSE:OXY) to break out to new 52-week highs in the week ahead, as the thriving oil-and-gas exploration and production company is forecast to deliver blowout earnings and revenue when it reports its latest financial results after the closing bell on Tuesday, Nov. 8.
As per moves in the options market, traders are pricing in a possible swing of approximately 6% in either direction for OXY stock following the earnings update.
Consensus calls for the Houston, Texas-based energy firm - which has beaten Wall Street estimates for six consecutive quarters - to post earnings per share of $2.68 for the third-quarter, improving more than 200% from EPS of $0.87 in the year-ago period, according to Investing.com.
Occidental’s revenue is forecast to jump 39% year over year to $9.44 billion as it benefits from higher output at its stellar operations in the Permian Basin, while the company also takes advantage of robust crude oil and natural gas prices.
Source: Investing.com
In my view, OXY’s strong Q3 results will likely lead management to raise its full-year profit and sales guidance to reflect the positive impact of skyrocketing energy prices on its business.
In light of this, I will pay close attention to whether the cash-rich oil-and-gas producer plans to return more capital to shareholders in the form of higher dividend payouts and stock buybacks.
Source: Investing.com
OXY stock, which has outperformed the broader market by a wide margin this year, ended Friday’s session at $73.27, within sight of a recent 52-week peak of $77.13 touched on Aug. 9, which itself was the stock's highest level since October 2018.
Year to date, shares have soared a whopping 152.7%, blowing past the gains made by industry peers Exxon Mobil (NYSE:XOM) (+83.5%), Chevron (NYSE:CVX) (+56.3%), ConocoPhillips (NYSE:COP) (+87.9%), EOG Resources (NYSE:EOG) (+65.7%), and Devon Energy (NYSE:DVN) (+65.5%) over the same time frame.
At current levels, Occidental Petroleum has a market cap of $68 billion.
In addition to improving energy market fundamentals, investors have also been encouraged by news that Warren Buffett’s Berkshire Hathaway (NYSE:BRKa, BRKb) has amassed a significant stake in the standout energy company.
Stock To Dump: Palantir Technologies
In my view, Palantir Technologies' (NYSE:PLTR) stock will suffer a challenging week, with a potential breakdown to new all-time lows on the horizon, as the out-of-favor enterprise-software company’s latest financial results will likely reveal a profit decline and slowing sales.
According to Investing.com, Palantir, which provides data-analytics software and services, is slated to deliver earnings per share of $0.02 for the third quarter, down 50% from a profit of $0.04 in the same quarter last year, due to higher operating costs.
Revenue is expected to increase 21% from the year-ago period to $474.6 million. If confirmed, that would mark the slowest Y-o-Y sales growth rate in Palantir’s history as the once high-flying software company struggles to deal with worsening fundamentals and a tough macroeconomic environment of rising interest rates, soaring inflation, and mounting recession fears.
Taking that into account, Palantir’s revenue and free cash flow guidance for the current quarter and beyond could surprise to the downside, given weakening demand trends for its data-analytics software tools from government agencies and large corporations around the world.
The downbeat outlook will add to growing skepticism that the big-data firm will hit its goal of generating sustainable top-line revenue growth of 30% or more through 2025.
PLTR’s Q3 results are due before the U.S. market open on Monday, Nov. 7.
Market players expect a sizable swing in PLTR shares following the results, according to the options market, with a possible implied move of roughly 14% in either direction.
Source: Investing.com
PLTR stock - which went public at $10/share via a direct listing in September 2020 - closed at $7.93 on Friday, reapproaching its mid-May record low of $6.44.
Palantir has seen its valuation collapse throughout 2022, with the stock falling 56.5% year to date. Even more worrying, shares are approximately 82% below their record peak of $45.00 reached in January 2021.
At current levels, the Denver, Colo.-based company has a market cap of $16.3 billion. At its peak, it was valued at more than $55 billion.
Disclosure: At the time of writing, Jesse is long on the Dow Jones Industrial Average and the S&P 500 via the SPDR Dow ETF (NYSE:DIA) and the SPDR S&P 500 ETF (NYSE:SPY). He is also long on the Energy Select Sector SPDR ETF (NYSE:XLE) and the Health Care Select Sector SPDR ETF (NYSE:XLV). The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.