- Core PCE inflation, Q1 GDP, and the final batch of earnings will be in focus this week.
- Salesforce (NYSE:CRM) is a buy with a strong beat-and-raise quarter expected.
- Dollar General (NYSE:DG) is a sell with weak results, disappointing guidance on deck.
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U.S. stocks closed higher on Friday, with the tech-heavy Nasdaq ending at a fresh record peak amid continued optimism over artificial intelligence-related business prospects.
For the week, the S&P 500 and Nasdaq rose 0.1% and 1.4% respectively, while the blue-chip Dow Jones Industrial Average declined 2.3% to snap its five-week rally.
Source: Investing.com
The holiday-shortened week ahead - which will see U.S. stock markets closed on Monday for the Memorial Day holiday - is expected to be another busy one as investors continue to assess how much juice is left in the AI-inspired rally on Wall Street and when the Fed may decide to cut interest rates.
Most important on the economic calendar will be Friday’s core PCE price index, which is the Fed's favorite inflation gauge. In addition, there is also important GDP data due on Thursday, which will provide more clues as to whether the economy is heading for a soft-landing or a recession.
That will be accompanied by a heavy slate of Fed speakers, with the likes of district governors Michelle Bowman, Loretta Mester, Lisa Cook, John Williams, and Raphael Bostic all set to make public appearances.
Source: Investing.com
Financial markets currently see a 50%-50% chance of the first interest-rate cut happening in September, according to the Investing.com Fed Monitor Tool.
Elsewhere, some of the key earnings to watch include updates from Salesforce (NYSE:CRM), Dell Technologies (NYSE:DELL), Costco (NASDAQ:COST), Dollar General (NYSE:DG), Best Buy (NYSE:BBY), Abercrombie & Fitch (NYSE:ANF), and Chewy (NYSE:CHWY) 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 fresh downside. Remember though, my timeframe is just for the week ahead, Monday, May 27 - Friday, May 31.
Stock to Buy: Salesforce
I expect a strong performance from Salesforce this week as the enterprise software giant’s latest earnings and outlook will easily top estimates thanks to broad strength in its cloud business and recent AI initiatives.
The San Francisco, California-based tech giant is scheduled to deliver its first quarter update after the U.S. market closes on Wednesday at 4:00PM ET. A call with CEO Marc Benioff is set for 5:00PM ET.
As could be expected, an InvestingPro survey of analyst earnings revisions points to surging optimism ahead of the print as Wall Street grows increasingly bullish on the cloud software provider. All 33 analysts covering the company upwardly revised their profit estimates in the past 90 days.
Market participants expect a sizable swing in CRM shares after the report drops, with a possible implied move of 7.6% in either direction as per the options market. The stock rose 3.1% after its last earnings report in late February.
Source: InvestingPro
Salesforce is seen earning $2.37 a share, jumping 40.2% from the year-ago period due to the positive impact of ongoing cost-cutting measures.
Meanwhile, revenue is forecast to increase 10.8% year-over-year to $9.14 billion thanks to solid demand from businesses and organizations for its customer relationship management (CRM) tools and solutions.
It should be noted that Salesforce has a long history of beating Wall Street’s quarterly estimates for profit and sales growth, doing so in every quarter dating back to at least Q2 2014.
But as is usually the case, investors will key in on Salesforce’s outlook for the current quarter and beyond. As such, I believe the company will strike an upbeat tone as it remains well positioned to thrive amid the current environment.
As businesses increasingly prioritize digital engagement and data-driven decision-making, Salesforce's AI-powered CRM platform, ‘Einstein GPT’, positions the company for continued success in a rapidly evolving market.
Source: Investing.com
CRM stock ended Friday’s session at $272.29, about 15% below its all-time high of $318.71 reached on March 1. At current levels, Salesforce has a market cap of $264.1 billion, earning it the status as the most valuable cloud-based software company in the world, ahead of SAP, Intuit (NASDAQ:INTU), and ServiceNow (NYSE:NOW).
Shares - which are one of the 30 components of the Dow Jones Industrial Average - have gained 3.5% since the start of the year.
It should be noted that CRM remains extremely undervalued according to the AI-powered quantitative models in InvestingPro and could see an increase of 19.7% from Friday’s closing price to its ‘Fair Value’ target of about $326.
Source: InvestingPro
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Stock to Sell: Dollar General
I foresee a disappointing week ahead for Dollar General as the discount retail chain’s first quarter update and forward guidance will underwhelm investors due to the negative impact of several headwinds on its business amid the current macro climate.
Dollar General’s Q1 print is scheduled to come out before the U.S. market opens on Thursday at 6:55AM ET, and results are expected to take a hit from a decline in customer traffic at its stores as well as higher cost pressures and decreasing operating margins.
Underscoring several near-term challenges facing Dollar General, all 19 analysts surveyed by InvestingPro cut their profit estimates ahead of the report to reflect a roughly 40% drop from their initial expectations.
As per the options market, traders are anticipating a swing of 8.3% in either direction for DG stock following the release.
Notably, shares fell nearly 4% after the company’s Q4 report came out in mid-March to suffer their seventh consecutive negative earnings-day reaction.
Source: InvestingPro
Dollar General - which operates almost 20,000 stores across the U.S. - is expected to deliver Q1 earnings per share of $1.58, tumbling 32.5% from EPS of $2.34 in the year-ago period, reflecting rising costs and stiff competition from bigger retailers, such as Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN).
If confirmed, that would mark the discount retailer’s fourth consecutive quarter of double-digit earnings declines.
Meanwhile, revenue is seen rising 6.3% annually to $9.89 billion.
Looking ahead, it is my belief that Dollar General’s management will disappoint investors in their forward guidance for fiscal 2025 and strike a cautious tone amid soft consumer spending on discretionary goods, weakening traffic trends, and declining operating margins.
Source: Investing.com
DG stock ended Friday’s session at $145.22. At current valuations, Dollar General has a market cap of $31.9 billion, making it the largest U.S. dollar store and one of the biggest discount retailers in the country.
Shares of the Goodlettsville, Tennessee-based company are up 6.8% in 2024, underperforming the broader market.
It should be noted that Dollar General currently has a below average InvestingPro ‘Company Health Score’ of 2.2 out of 5.0 due to mounting concerns over spotty sales growth, weakening profit margins, and declining free cash flow.
Source: InvestingPro
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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 (NYSE:SPY)), and the Invesco QQQ Trust ETF (QQQ).
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.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.