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Ending the month on a high note

Ending the month on a high note

The broader US market averages rose last week, even after the Federal Reserve raised interest rates. The S&P 500 rose more than 4%, led by the energy sector, to end its best month since November 2020.

The FOMC raised interest rates again by 75 basis points on Wednesday. The Fed has raised interest rates to combat rising inflationary pressures, and on Friday the PCE price index showed further growth.

In other economic news, the preliminary US GDP reading for the second quarter on Wednesday showed a 0.9% decline. This marked a second consecutive quarterly decline, which has historically signaled a recession.

Elsewhere, consumer confidence was reported to have fallen, but durable goods rose.

The week ahead

The pace of earnings reports will remain high next week, with 153 companies in the S&P 500 scheduled to post quarterly results. The following name is the heading of the reporting calendar:

August 2: Advanced Micro Devices (AMD), Caterpillar (CAT) and Starbucks (SBUX)

August 3: CVS Health (CVS)

August 4: Amgen (AMGN) and Eli Lilly (LLY)

Overall S&P 500 earnings are projected to grow just 7.7% in the second quarter, or actually show a 2.6% decline, excluding the energy sector. Financial names are expected to have the biggest drop in earnings in the period.

As the calendar turns to August, the Institute for Supply Management will release July manufacturing data on Monday, followed by a reading for the services sector on Wednesday.

On Friday comes the employment report for July, with economists calling for an addition of 250,000 non-farm payrolls and for the headline unemployment rate to remain at 3.6%.

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Given a slowing growth outlook and the prospect of higher interest rates, it may be difficult to achieve investment gains in 2022. As a result, it may be challenging for any investor to decide what and when to buy.

However, the fact is that investments with upside potential and other positive signals are out there if you dig a little deeper.

Such a technology name is worth a closer look and is the stock of the week.

Stock of the week: Semtech (SMTC)

The company makes semiconductors for a wide variety of electronic products, including those within the Internet of Things (IoT) ecosystem.

The stock gained 7% last week and is showing signs that it has the potential to continue this relative outperformance into the second half of 2022.

Here’s why:

This week, Congress passed a $50 billion bill designed to help US-based chip makers. The semiconductor industry has been plagued by supply chain issues throughout the coronavirus pandemic.

Even before that relief can materialize, Semtech has strong operating momentum, as evidenced by the better-than-expected quarterly results that management reported last month.

The company earned $0.80 per share in the April quarter, as revenue rose 18% from a year ago to $202.1 million. Semtech expanded margins during the period and also used its solid cash flow to buy back $50 million worth of stock.

The shares are currently valued at 17.6x expected earnings over the next four quarters. This represents a discount to the wider market, as well as the forecast earnings growth of 18.3% this year.

Wall Street agrees that the company has value. The average price target for nine active analysts tracked by TipRanks is $79.11, reflecting 26.9% upside potential.

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Meanwhile, Semtech has an “Outperform” Smart Score of 9/10 on TipRanks. This data-driven stock score is based on 8 important market factors.

On top of the positive aspects already mentioned, the Smart Score indicates that stocks have seen insider buying, in addition to improving sentiment from hedge funds, financial bloggers and individual investors.

FYI: This is just 1 of the 20+ stocks selected for the Smart Investor Portfolio, a weekly newsletter that blends big data and market insights.

Disclaimer: The information in this article represents the views and opinions of the writer only and not the views or opinion of TipRanks or its affiliates Read the full disclaimer >

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