5 Cheap Strong Buy Stocks: Values or Traps?

The S&P 500 Index today is up +0.31%, the Dow Jones Industrials Index is up +0.64%, and the Nasdaq 100 Index is up +0.11%.

Stocks today are moderately higher, with the Dow Jones Industrials posting a 1-week high. Positive corporate news today is boosting stocks. Super Micro Computer is up more than +10% to lead gainers in the S&P 500 and Nasdaq 100 after it said it believes it can file its delayed 10-K and 10-Q reports in the period available under Nasdaq rules. Also, Ross Stores is up more than +4% after reporting stronger-than-expected Q3 EPS and raising its 2025 EPS forecast.

Today’s rally in global government bond prices is supporting equity markets after 10-year German bunds climbed to a 1-month high, providing carryover support to T-note prices. T-notes are also climbing after the Wall Street Journal reported that President-elect Trump supports Kevin Warsh as the next Treasury Secretary, who is seen as a bond-friendly pick as Warsh has previously spoken out against high deficits.

Concern about weakness in the Eurozone economy is limiting gains in stocks after the Eurozone Nov S&P PMI unexpectedly contracted and Germany’s Q3 GDP was revised lower. Also, the recent escalation of the Ukraine-Russia conflict is weighing on stocks.

Of the 90% of companies in the S&P 500 that have released Q3 earnings so far, 75% surpassed the estimates, slightly below the 3-year average. According to Bloomberg Intelligence, companies in the S&P 500 have reported an average +8.5% y/y increase in quarterly earnings in Q3, more than double the preseason forecast.

The markets are discounting the chances at 59% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets today are mixed. The Euro Stoxx 50 is up +0.31%. China's Shanghai Composite Index fell to a 2-1/2 week low and closed down sharply by -3.06%. Japan's Nikkei Stock 225 closed up +0.68%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up +5 ticks. The 10-year T-note yield is down -1.6 bp to 4.406%. Dec T-notes today are climbing on carryover support from a rally in European government bonds. T-notes also gained support from a Wall Street Journal report that said President-elect Trump is seen as supporting Kevin Warsh as the next Treasury Secretary. The appointment of Warsh, a former Fed governor known as a hawk who has warned about surging debt burdens, would be seen as a sign of stability and someone who would push back against some of the most extreme policy scenarios Trump has discussed.

European government bond yields today are moving lower. The 10-year German bund yield fell to a 1-month low of 2.235% and is down -5.4 bp to 2.264%. The 10-year UK gilt yield dropped to a 3-week low of 4.363% and is down -4.1 bp to 4.401%.

The Eurozone Nov S&P manufacturing PMI fell -0.8 to 45.2, weaker than expectations of no change at 46.0. Also, the Eurozone Nov S&P composite PMI fell -1.9 to 48.1, weaker than expectations of no change at 50.0 and the steepest pace of contraction in 10 months.

German Q3 GDP was revised downward to +0.1% q/q and -0.3% y/y from the previously reported +0.2% q/q and -0.2% y/y.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 45% for a -50 bp rate cut at the same meeting.

US Stock Movers

Super Micro Computer is up more than +10% to lead gainers in the S&P 500 and Nasdaq 100 after it said it believes it can file its delayed 10-K and 10-Q reports in the period available under Nasdaq rules.

Copart is up more than +7% after reporting Q1 revenue of $1.15 billion, stronger than the consensus for $1.10 billion.

The Gap is up more than +8% after reporting Q3 operating margin of 9.13%, better than the consensus of 8.17%, and raising its 2025 gross margin estimate to about +220 bps from a previous estimate of about +200 bps.

Ross Stores is up more than +4% after reporting Q3 EPS of $1.48, stronger than the consensus of $1.40, and raising its 2025 EPS forecast to $6.10-$6.17 from a previous forecast of $6.00-$6.13, the midpoint above the consensus of $6.13.

Elastic NV is up more than +21% after reporting Q2 adjusted EPS of 59 cents, well above the consensus of 38 cents, and raising its 2025 adjusted EPS forecast to $1.68-$1.72 from a previous estimate of $152.$1.56, stronger than the consensus of $1.53.

Nike is up more than +2% to lead gainers in the Dow Jones Industrials after Needham & Co. initiated coverage on the stock with a buy recommendation and a price target of $84.

Viking Therapeutics is up more than +2% after B Riley Securities initiated coverage of the stock with a recommendation of buy and a price target of $109.

NetApp is up more than +1% after reporting Q2 net revenue of $1.66 billion, above the consensus of $1.64 billion, and raising its 2025 net revenue forecast to $6.54 billion-$6.74 billion from a previous forecast of $6.48 billion-$6.68 billion.

Intuit is down more than -3% after forecasting Q2 adjusted EPS of $2.55-$2.61, well below the consensus of $3.23.

Pala Alto Networks is down more than -3% to lead losers in the Nasdaq 100 after HSBC downgraded the stock to reduce from hold with a price target of $291.

Reddit is down more than -7% after Downdetector reported that users are having problems connecting to Reddit’s website.

Nvidia is down more than -1% to lead losers in the Dow Jones Industrials after the company’s forecast for Q4 revenue exceeded estimates by only $400 million, the second consecutive quarter that revenue didn’t exceed estimates by $1 billion or more, suggesting the recent hyper-growth of the stock is fading.

Alphabet is down more than -1%, adding to Thursday’s -4% loss after the US Justice Department proposed major changes to Google, including a forced sale of its Chrome web browser, saying the browser “fortified” the company’s dominance.

Tenet Healthcare is down more than -1% after Raymond James downgraded the stock to outperform from a strong buy.

HCA Healthcare is down more than -1% after Raymond James downgraded the stock to market perform from outperform.

Earnings Reports (11/22/2024)

AMMO Inc (POWW), B Riley Financial Inc (RILY), Buckle Inc/The (BKE), Destination XL Group Inc (DXLG), Evolv Technologies Holdings Inc (EVLV), IES Holdings Inc (IESC), Spire Global Inc (SPIR).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.

El Pollo Loco Holdings, Inc.’s LOCO shares have performed poorly in the past three months, underperforming the S&P 500 and the industry. In the same time frame, LOCO has lost 11.2% against the industry and the S&P 500’s 4.5% and 5.2% growth, respectively.

As of Thursday, the stock closed at $12.09, below its 52-week high of $14.25 but above its 52-week low of $8.17. It has also underperformed other industry players like Chipotle Mexican Grill, Inc.'s CMG 11.5% rise, Restaurant Brands International Inc.'s QSR 0.8% dip and Brinker International, Inc.'s EAT 73.9% surge in the past three months.

Price Performance