Lululemon finds itself trading around the lowest level in five years ahead of its earnings report on Thursday.Mark Lennihan/The Associated Press
Parents, please enjoy this sacred window when the kids are back at school and occupied for eight hours a day. It won’t be long before they return home for a week and take down the entire house with a delightful new plague.
Here are the big things to watch, including a few stocks trading near multiyear lows reporting this week. Will earnings be a turning point for any of these laggards?
Roll call: The last time we got a U.S. jobs report, 258,000 jobs were “revised” away from May to June. The stunning “just kidding” moment for U.S. exceptionalism sparked the anger of President Donald Trump, who fired the commissioner of the Bureau of Labor Statistics. Suddenly, the narrative went from a resilient American economy to one on its knees. While the economy is struggling, investors got the green light from Fed chair Jerome Powell, who all but confirmed a rate cut to come at the September meeting. For August, economists are looking for tepid growth, just 78,000 new jobs, while unemployment is expected to tick up to 4.3 per cent. With the S&P 500 at record highs, investors have decided that rate cuts trump reality.
May the force be with you: The Nasdaq is near records, but Salesforce Inc. CRM-N has been left out in the cold. Will earnings this week turn things around? With its valuation at a decade low, it’s worth paying attention to its results. Software has underperformed on concerns that artificial intelligence is taking over many capabilities. Salesforce is caught up in those concerns, but the stock has done even worse than the index. This, despite the company having its own AI solution, Agentforce. The trouble is that its AI isn’t being deployed at scale yet. Sales this quarter are projected to grow 8.7 per cent, which is a deceleration from previous years. “We remain more cautious on [Salesforce],” Citi’s Tyler Radke wrote in a preview note to clients, warning investors not to be lured by its low valuation. Mr. Radke says his checks indicate that revenue growth will “remain constrained” and this quarter could be worse than the previous quarter.
Downward dog: Multiyear lows are never a good thing, but they feel especially embarrassing when the market is at record highs. Lululemon Athletica Inc. LULU-Q finds itself trading around the lowest level in five years, ahead of its earnings report after the bell on Thursday. But valuation expectations are also at rock-bottom. Lulu is unlikely to have a blowout quarter, but maybe it doesn’t need one for the stock to do well. “We think the stock’s selloff presents a particularly good opportunity to own a strong growth company with high margins,” Bank of America’s Lorraine Hutchinson wrote in a note to clients. “The market is looking for a sizable earnings cut,” Ms. Hutchinson continued. “If LULU can execute on its [second-quarter] sales growth … we think the stock will re-rate.” Shareholder Jamie Murray of Murray Wealth Group said the company’s underlying issues are fixable. “Catalysts from here beyond improved financials include an activist investor stepping in, C-suite management shakeup or a new trendsetter product,” he said in an interview.
Night owl: The rerating of Alimentation Couche-Tard Inc. ATD-T after it abandoned its bid for Seven & i SVNDF has come and gone. The stock has given up all its gains since the company announced in July it wouldn’t pursue the deal. Unfortunately, most analysts aren’t all that optimistic that earnings will be a turning point (although most still rate the stock a buy). Aside from its now-abandoned pursuit of the 7-Eleven stores, the company has struggled with sales of merchandise at its gas stations, particularly in the U.S., as well as weaker fuel margins. Much of the stock’s ability to recover may lie in the company’s ability to turn around its U.S. sales. The chain has argued it is being hurt by soft consumer spending. Investors have some doubts that is truly what is going on. “We are unsure if weakness in the low-income consumer is the key driver of [Couche-Tard’s] muted comps given broader economic data shows a resilient U.S. consumer,” Bank of Montreal’s Tamy Chen wrote in a downgrade ahead of earnings. Ms. Chen thinks product mix might be a problem too, given that cigarettes, its largest category, is struggling compared with prepandemic levels, while growing categories are still a smaller piece of the overall business.
AI train: Broadcom Inc. was riding Nvidia’s NVDA-Q coattails last week but will have to stand on its own when it reports results on Thursday. Like Nvidia, the chip maker is trading near a record high. Broadcom is expected to show a 21-per-cent increase in sales, more than doubling in profit and record free cash. Broadcom is a direct beneficiary of the hundreds of billions being spent on AI infrastructure, and almost no one wants to stand in the stock’s way. Ninety per cent of analysts rate Broadcom a buy.
In the Money with Amber Kanwar is Canada’s top investing podcast. Don’t miss the CEO Summer Series featuring in-depth conversations with some of Canada’s top CEOs all month long. New episodes out Tuesday! Subscribe now! www.inthemoneypod.com