Markets are down today on concerns about interest rates. At the beginning of the week, optimists were hoping that we’d see slower growth in job numbers this week, and that would enable the Fed to raise rates by less than had been feared. However, today ADP published strong US job figures – 208,000 jobs were added in in August, ahead of a forecast of 200,000. So we can expect further nasty rate rises which is bad news for stocks. The S&P 500 is down 0.8% at 3760.
Today’s other news is a rise in the oil price. The OPEC + cartel says it plans to cut oil production by two million barrels a day, pushing up the West Texas price (WTI) by over 1% to $87.66.
Today’s risers include an oil giant, as well as a big producer of frozen French fries. The fallers include a telecom stock and the most famous of Wall Street’s investment banks. Read on for more.
When a company announces results that are better than the market expected, you normally expect a rise in the share price, and that’s what we’ve seen today with Lamb Weston Holdings (LW). The frozen potato company announced that its first quarter profits came in at 75 cents per shares, way ahead of the 49 cent market forecast. The shares are up 5.3% to $83.06 as a result.
Profits were boosted by higher sale prices even though Lamb Weston has had to pay higher prices for its potatoes as well as labor and transportation. Lamb Weston is clearly confident about its prospects as it announced last month that it would spend $240 million creating a new frozen French fry facility in Argentina.
Lamb Weston’s ability to increase profits while costs are rising is impressive. There’s a good chance we’ll see further rises in the share price.
The OPEC+ decision to cut production has boosted most oil companies and Exxon Mobil (XOM) has delivered one of the biggest share price rises. Its shares are currently up 4% at $99.38.
Exxon shares were also up yesterday after the oil giant said that strong natural gas prices were more than offsetting a weaker performance from refining and chemicals. If you think the oil price is going to stay high, then Exxon Mobil offers a relatively low risk way way to make money from those high prices. The oil giant is valued at almost $400 billion and offers a very attractive dividend yield of close to 4%.
Higher oil prices and higher interest rates are bad news and may drive more of us to discount stores like Dollar Tree (DLTR). So it’s no surprise to see Dollar Tree’s share price edging up 29 cents to $141.98 on a day when the overall market is falling.
That said, Dollar Tree’s share price hasn’t performed that well in 2022. Investors were worried by a cautious outlook statement in August when Dollar Tree warned that it was struggling to keep its prices low when its costs were rising fast. Dollar Tree doesn’t want to lose its reputation as a discount brand, so it may have to cut margins to stay cheap. The other issue is that Dollar Tree’s larger rival, Dollar General (DG), has a stronger track record and is likely to come through this economic cycle in a better state than Dollar Tree.
JD.COM, the Chinese e-commerce giant, was a big faller on Monday but has retraced some of that decline today with a 1% rise to $52.58.
JD has a reputation for selling high quality merchandise and its profit margins are rising. The company’s market share has risen this year and it’s experimenting with automated delivery vehicles and drones. If you’re positive on the outlook for China, then JD.com is worth looking at.
Shares in Lumen Technologies (LUMN) have crashed 9% to $7.24 on concerns that its dividend may not be safe. The concerns come from Wells Fargo which also cuts its rating on the telecom stock from ‘Overweight’ to ‘Underweight’ today.
Profits fell in the last quarter, partly due to rising labor costs, so even before today the shares were performing poorly. But on the plus side, Lumen is now investing in high-growth areas of the telecom sector that are likely to make bigger profits. These include strategic IT services for businesses and the expansion of fiber services. That includes taking fiber all the way to a customer’s premises. Lumen has raised cash for this investment by selling some more retro telecom businesses in 20 states for $7.5 billion. Lumen has also sold its Latin America business this year for $2.7 billion.
Goldman Sachs (GS) has had a bad day with the shares down 2.7% to $306.12 today. Atlantic Securities downgraded the bank this morning while JP Morgan put out a negative note on most of the sector arguing that banks will have to cut back on risky activities. That’s to keep the regulator happy as we head into a possible recession. The tougher climate may mean that share buybacks are put on hold at bank until at least next summer.
Goldman Sachs is in the middle of a strategic pivot. It’s trying to focus less on its traditional ‘greed is good’ Wall Street business and expand its consumer businesses such as savings and credit cards. It’s still the number one investment bank when it comes to corporate deals, but broadening out the business should make the stock less risky for investors.
Enphase Energy (ENPH) is a solar energy technology company, so you might expect its stock price to do well on a day when oil prices are rising and renewable energy looks ever more attractive. But instead shares in Enphase have been slaughtered today with a 13% slump to $251.23. Perhaps investors are waking up to valuation concerns here. Even after today’s fall, the stock is trading on 60 times earnings and it faces plenty of competition from the likes of Solaredge (SEDG).
For the second time this week, DocuSign (DOCU) is one of the biggest tech stock fallers. The e-signature company’s shares are down 6% at $52.32. The problem with DocuSign is that it’s no longer a sexy growth company. Last month it announced it was cutting 9% of its workforce. And if you’re shrinking, not growing, you can no longer expect to trade on a super-high valuation. Granted, the stock price is already down 65% this year, but further falls look likely.