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1 Stock To Buy, 1 To Dump When Markets Open: Target, Twitter

Published 2022-05-15, 06:39 a/m
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Stocks on Wall Street rallied on Friday to cap off another brutal week, with the benchmark S&P 500 suffering its longest weekly losing streak since 2011 amid ongoing worries over the Federal Reserve's plans to aggressively raise interest rates.

S&P 500, Dow, NASDAQ Chart

The coming week is expected to be another busy one amid more earnings from notable companies like Walmart (NYSE:WMT), Home Depot (NYSE:HD), Lowe’s Companies (NYSE:LOW), Kohl's (NYSE:KSS), Cisco (NASDAQ:CSCO), Applied Materials (NASDAQ:AMAT), Palo Alto Networks (NASDAQ:PANW), Deere (NYSE:DE), ZIM Integrated Shipping Services (NYSE:ZIM), and JD.com (NASDAQ:JD).

In addition to earnings, retail sales and housing data are highlights of the economic calendar, and Fed Chair Jerome Powell speaks at a conference on Tuesday.

Regardless of which direction the market goes, below we highlight one stock likely to be in demand and another which could see further downside.

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

Stock To Buy: Target

Target Corporation (NYSE:TGT) could see increased buying activity in the days ahead as the retail heavyweight is expected to deliver a beat on earnings and revenue growth when it releases its latest financial results ahead of the U.S. market open at 6:30AM ET on Wednesday, May 18.

According to InvestingPro+, consensus calls for the Minneapolis, Minnesota-based big-box retailer to post earnings per share of $3.06 for the first quarter, down roughly 17% from EPS of $3.69 in the year-ago period, mostly due to challenging year-over-year comparisons.

Revenue is expected to climb about 1% year-over-year to $24.4 billion, benefitting from strong growth in its private and exclusive brands, as well as its continuing efforts to add faster order pickup and shipping options.

TGT Earnings View

Source: InvestingPro

Perhaps of greater importance, investors will monitor growth in Target’s total comparable sales, which include sales both online and at stores open for at least a year. Target said the key metric rose by 8.9% in Q4, with digital comparable sales growing 9.2%, and physical comparable store sales increasing 8.9%.

Beyond the top-and-bottom line numbers, Target’s outlook for the rest of the year will be in focus as the discount retailer deals with ongoing macroeconomic headwinds, such as higher costs, supply chain disruptions, and labor shortages.

Commentary from executives regarding the health of the U.S. consumer will also be scrutinized amid record-high inflation, rising gas prices, and recession concerns.

When the company reported Q4 earnings on Mar. 1, management provided strong guidance, saying they expect growth to continue, even after the COVID-19 pandemic turbocharged its business.

Investors bid up the stock in response, sending TGT shares up by more than 12%.

TGT Daily Chart

TGT ended Friday’s session at $219.73, earning the retailer a valuation of $101.6 billion. Shares, which are down 5% year-to-date, are approximately 18% below their all-time high of $268.98 reached in November 2021.

Stock To Dump: Twitter

Twitter (NYSE:TWTR) shares are expected to suffer another volatile week, with more wild swings on the horizon, as investors react to fresh developments surrounding Elon Musk’s controversial $44 billion agreement to buy the social media platform.

The latest news in the saga came after Musk tweeted on Saturday that Twitter’s legal team accused him of violating a nondisclosure agreement by revealing that the sample size for how the company estimates automated users and fake accounts was 100.

On Friday, the Tesla (NASDAQ:TSLA) CEO tweeted that his deal to acquire the company was “temporarily on hold,” pending details on the number of spam and bot accounts on the platform.

That tweet initially sent TWTR shares down more than 20% on Friday morning, before trimming losses to end the session off by about 10% after Musk said in a follow-up tweet that he was “still committed” to the acquisition.

Twitter CEO Parag Agrawal also weighed in, tweeting "While I expect the deal to close, we need to be prepared for all scenarios."

The estimated number of spam accounts on the microblogging site has held below 5% since 2013, according to regulatory filings, prompting some to speculate that Musk is angling for a better price—or to even walk away from the deal—given the sharp reset in valuations across the tech space in recent weeks.

In fact, the spread between the offer price and the value of Twitter shares has widened dramatically, implying less than a 50% chance of completion.

Taking that into account, we expect the wild swings in TWTR to continue in the week ahead.

TWTR Daily Chart

TWTR shares ended at $40.72 on Friday, a steep discount to the $54.20 per share acquisition price. At current levels, the San Francisco, California-based microblogging platform—which is down 5.8% year-to-date—has a market cap of $31 billion.

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