Zacks Analyst Blog Highlights Kroger, Olympus and Komatsu Models
For immediate release
Chicago, IL – July 6, 2022 – Zacks.com announces the list of stocks featured in the analyst blog. Every day, Zacks Equity Research analysts discuss the latest news and events impacting stocks and financial markets. Stocks recently featured in the blog include: The Kroger Co. KR, Olympus OCPNY and Komatsu KMTUY.
Here are the highlights from Tuesday’s analyst blog:
Time to buy Chinese large caps? World week ahead
On Friday morning, at the end of the upcoming global week, the US nonfarm payrolls print arrives.
After a lousy first half of 2022, the world’s major stock markets are hoping for a macro sign – a sign that will allow the US central bank to reverse its hawkish approach.
What if non-farm payrolls in the United States in June ended well below consensus (+295,000)? This could provide that major negative macroeconomic surprise in the United States.
Elsewhere, central bank action also appears to be front and center:
· Last Friday, July 1, the ECB launched its bond reinvestment program; made to protect the fragile economies of southern Europe from a new sovereign debt crisis
The emerging market policy tightening frenzy appears to be continuing, and
Falling in Australia, a half-point hike in the key rate is expected
This is followed by Reuters’ five global market themes, rearranged for stock traders.
(1) On Friday, July 8, the US nonfarm payroll lands. Look for +295K.
US data has recently provided more than its fair share of negative surprises, a sign that the Federal Reserve’s 150 basis point rate hikes are trickling down to the economy.
But without a slowdown in inflation, the Fed is on autopilot with rate hikes. Friday will show the performance of the other arm of the Fed’s inflation/employment mandate.
Analysts expect 295,000 US jobs added in June; a figure significantly lower than that which could strengthen the case for lower or slower rate hikes, after the latest move of 75 basis points.
Traders reduced bets on where rates could peak, allowing a bid for a rally in equities. So, for some on Wall Street, a weaker jobs print could end up being good news.
(2) In H2-22, mainland Chinese equities could be an attractive niche.
Despite all the angst over Chinese capital outflows, the MSCI China stock index ended the first half of 2022 down -12%, comparing favorably to the -20% drop in the S&P 500.
One reason was a rebound in June, driven by the easing of COVID lockdowns. As officials pledge to support markets and the economy and ease their clampdowns on the tech sector, investment banks are once again rushing to impose buy labels on Chinese stocks.
There are headwinds, including the possibility of Western sanctions down the road and more defaults in the property sector. The long-awaited policy easing may be a long time coming as the rest of the world is in rate hike mode.
Still, with Western and emerging market equities reeling from rate hikes and inflation, China could have an upbeat second half.
(3) The European Central Bank will tighten the North-South bond spread.
From July 1, the European Central Bank (ECB) will use the proceeds from maturing German, French and Dutch debt to buy bonds from Italy and other southern states.
The goal is to prevent their borrowing costs from rising too high relative to wealthier peers – known as fragmentation.
So far, so good. Expectations of ECB support have helped cut Italy’s 10-year borrowing costs by 100 basis points since mid-June, while its yield premium to Germany is just over above 200 basis points, falling from a perceived danger line of 250 basis points reached two weeks ago.
It’s hard to say how long the feel-good effect will last; Citi analysts say the spread tightening is overdone and markets have already valued 50 billion euros in bond reinvestments. The test starts now.
(4) Central banks in Eastern Europe also increased their key rates further.
This year has tempered a long held view that EU countries such as Poland and Hungary are part of a lucky fringe within emerging markets. In fact, regional policymakers are under immense pressure due to double-digit inflation, risks from the Russian-Ukrainian conflict and collapsing currencies.
The Hungarian central bank has just hiked rates by 175 basis points – more than three times what was expected – illustrating the painful pressures on prices. However, the forint languishes at historically low levels against the euro.
Romania is expected to raise rates by 75 basis points to 4.5% on Wednesday, while Poland’s central bank could raise its current interest rate of 6% by 100 basis points at its meeting on Thursday. Serbia is also expected to raise its benchmark rate by 2.5%.
Inflation isn’t the only problem either: rating agency Fitch warns that the Czech Republic, Hungary and Slovakia are among the most vulnerable to a Russian gas supply cut.
(5) On Thursday, the Reserve Bank of Australia (RBA) will probably increase its key rate.
Reserve Bank of Australia Governor Philip Lowe said the choice at Thursday’s policy meeting was between a quarter-point or half-point rate hike. But the markets are not buying it.
Instead, they expect Lowe to pull a 50 basis point hike out of the hat and see rates at 1.5% by August from 0.85% currently.
And why not, after being stung by a shock hike of half a point last month, rather than the expected 25 basis points.
A weak Australian dollar that boosts imported inflation helps those bets. And remember, Lowe has a habit of talking downside risk of rising rates, only to capitulate later. With inflation at two-decade highs, traders are betting on more of the same.
Zacks #1 Ranking (STRONG BUY) Stocks
With the Japanese yen trading at 135 to 1 USD now, I decided to highlight 2 large cap Japanese stocks on our #1 list this week.
Their stock prices of around $20 per share could well be attractive entry points.
(1) The Kroger Co.:It is a $47 per share stock, representing a market capitalization of $33.8 billion. I see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of B.
(2) Olympus: It is a $20 per share precision medical device manufacturer based in Japan. That makes a market capitalization of $25.8 billion. I see a Zacks Value score of D, a Zacks Growth score of C, and a Zacks Momentum score of A.
(3) Komatsu: It is a $22 per share heavy manufacturing, construction and mining equipment maker based in Japan. That makes a market capitalization of $21.5 billion. I see a Zacks Value score of A, a Zacks Growth score of C, and a Zacks Momentum score of C.
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Zacks names ‘only one best choice for doubling up’
From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.
It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could step in at any time.
This company could rival or surpass other recent Zacks stocks that are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.
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