- U.S. jobs data, PCE inflation report in focus.
- Salesforce is a buy with solid earnings beat on deck.
- Dollar General will struggle amid expected earnings miss and weak guidance.
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Stocks on Wall Street ended a volatile session higher on Friday as investors digested comments from Federal Reserve Chair Jerome Powell that the U.S. central bank may need to raise interest rates further to ensure inflation is contained.
Powell also promised to move “carefully” at upcoming meetings in his much-anticipated morning speech at the Economic Policy Symposium in Jackson Hole, Wyoming.
For the week, the benchmark and technology-heavy rose 0.8% and 2.2% respectively to snap a run of three straight weekly declines. The blue-chip , on the other hand, fell 0.5% to suffer its second straight week of losses.
Next week is expected to be another eventful one as the calendar flips from August to September and investors continue to gauge the outlook for the economy, inflation, and interest rates.
On the economic calendar, most important will be Friday’s U.S. jobs report. As per Investing.com, are forecast to rise by 170,000 in August, slowing from a gain of 187,000 in July, while the unemployment rate is seen holding steady at 3.5%.
In addition, the (PCE) price index, which is the Federal Reserve’s preferred inflation measure, will also be released on Thursday.
The key pieces of data will be important in determining the Fed’s next policy move. Currently, financial markets see an 80% chance of the central bank holding rates at current levels at its September meeting, according to Investing.com’s .
Elsewhere, some of the key earnings reports to watch next week include updates from Broadcom (NASDAQ:), CrowdStrike (NASDAQ:), MongoDB (NASDAQ:), Okta (NASDAQ:), Lululemon (NASDAQ:), and Best Buy (NYSE:) as Wall Street’s Q2 reporting season draws to a close.
Regardless of which direction the market goes next week, below I highlight one stock likely to be in demand and another that could see fresh downside.
Remember though, my timeframe is just for the week ahead, Monday, August 28 – Friday, September 1.
Stock To Buy: Salesforce
I believe Salesforce’s (NYSE:) stock will outperform in the coming week, as the enterprise software giant’s latest earnings report will easily top estimates in my view thanks to solid demand for its customer relationship management tools.
The San Francisco, California-based company is scheduled to deliver its second-quarter update after the U.S. market closes on Wednesday, August 30 at 4:05PM ET.
Options trading implies a 7% swing in either direction for CRM shares after the report drops.
Not surprisingly, an InvestingPro survey of analyst earnings revisions points to surging optimism ahead of the print, with analysts growing increasingly bullish on the CRM software provider.
Salesforce is seen earning $1.90 a share in the June quarter, improving 59.6% from the year-ago period due to the positive impact of ongoing cost-cutting measures. If that is in fact reality, it would mark Salesforce’s most profitable quarter in its 24-year history, surpassing the previous record of $1.74 notched in Q3 2020.
Meanwhile, revenue is forecast to rise 10.3% year-over-year to $8.52 billion. The Marc Benioff-led company has beaten Wall Street’s sales estimates in every quarter dating back to at least Q2 2014, as per InvestingPro, highlighting the strength and resilience of its business.
In addition, management will likely provide fresh details on the company’s AI software offerings. Salesforce recently launched Einstein GPT, a generative artificial intelligence tool designed to help sales, marketing and customer service teams do their jobs more efficiently.
Looking ahead, I believe the tech giant will provide upbeat profit and sales guidance for the rest of the year as it remains well positioned to thrive despite an uncertain macro environment.
CRM stock – which rallied to a 2023 peak of $238.22 on July 19 – ended at $209.47 on Friday. At current levels, Salesforce has a market cap of $204 billion, earning it the status of the most valuable cloud-based software company in the world, ahead of SAP (NYSE:), Intuit (NASDAQ:), and ServiceNow (NYSE:).
Shares have soared 58% year-to-date, rising alongside much of the tech sector. It should be noted that CRM remains extremely undervalued according to the quantitative models in InvestingPro, and could see an increase of 36% from Friday’s closing price to its ‘Fair Value’ target of about $285.
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Stock To Sell: Dollar General
I anticipate shares of Dollar General (NYSE:) will suffer a difficult week, with a potential breakdown to new 52-week lows on the way, as the discount retailer will miss estimates for second quarter earnings in my opinion and provide a weak outlook amid the negative impact of various headwinds on its business.
Dollar General’s Q2 results are due ahead of the opening bell on Thursday, August 31 at 6:55AM ET, and are likely to take a hit from a decline in customer traffic at its stores as well as higher cost pressures and decreasing operating margins due to the difficult macroeconomic climate.
The negative impact of the growing industry-wide trend of retail theft, or ‘shrink’, will likely be another cause for concern as increasing incidents of shoplifting have weighed on the quarterly performances of other prominent retailers, including Dollar Tree (NASDAQ:), Target (NYSE:), Dick’s Sporting Goods (NYSE:), Macy’s (NYSE:), Nordstrom (NYSE:), and even Home Depot (NYSE:).
Market participants expect a sizable swing in DG shares following the update, with a possible implied move of approximately 8%, according to the options market. Dollar General sank more than 17% after its last earnings report in June.
Underscoring several headwinds Dollar General faces amid the current environment, analysts have slashed their profit estimates 22 times in the last 90 days, compared to zero upward revisions, as per an InvestingPro survey.
Wall Street sees the Goodlettsville, Tennessee-based discount retail chain earning $2.47 a share, falling 17.1% from EPS of $2.98 in the year-ago period. Meanwhile, revenue is forecast to inch up 5.2% annually to $9.92 billion.
Looking ahead, it is my belief that Dollar General’s management will strike a cautious tone in its forward guidance given the ongoing slowdown in demand for higher-margin items as inflation remains persistently high.
DG stock, which slumped to a more than three-year low of $151.27 on June 12, closed Friday’s session at $154.98. At current valuations, Dollar General has a market cap of $34 billion, making it the largest U.S. dollar store and one of the biggest discount retailers in the country.
Despite its recession-proof status, shares have lagged the year-to-date performance of the broader market by a wide margin in 2023, tumbling 37% in contrast to the S&P 500’s near 15% gain.
Disclosure: At the time of writing, I am long on the Dow Jones Industrial Average via the SPDR Dow ETF (DIA). I also have a long position on the Energy Select Sector SPDR ETF (NYSE:) and the Health Care Select Sector SPDR ETF (NYSE:). Additionally, I am short on the S&P 500, Nasdaq 100, and Russell 2000 via the ProShares Short S&P 500 ETF (SH), ProShares Short QQQ ETF (PSQ), and ProShares Short Russell 2000 ETF (RWM). 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.