For a second straight day, U.S. stocks were relatively quiet. Major indices were mixed, with a modest gain for the S&P 500 and a larger, but still minimal, decline for the tech-heavy NASDAQ Composite.
Earnings news looks mixed. After-hours, Qualcomm (NASDAQ:QCOM) jumped while Roku (NASDAQ:ROKU) gave back some of its recent gains. Chesapeake Energy (NYSE:CHK) continued the struggles among energy stocks, as it plunged during regular trading after a Q3 miss drove bankruptcy fears.
Overall, however, this looks like a market still waiting for direction. Earnings from major names were strong enough to get the market to all-time highs. The question is: what comes next?
Thursday’s big stock charts don’t necessarily answer that question. But they do highlight three stocks with real room to rally if broad market optimism continues — because all three have touched multi-year lows in 2019. Two of our big stock charts show recent recoveries that could continue if sentiment holds. Another needs all the help it can get.
Kraft Heinz (KHC)
To be blunt, Kraft Heinz (NASDAQ:KHC) has been one of the market’s biggest disasters in recent years. At August lows, KHC stock had declined over 70% from 2017 highs. A supposedly transformative merger, backed by Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B), aimed to create a dominant consumer products giant. Instead, execution has suffered and debt has weighed down the share price amid legitimate concerns surrounding the health of the consumer space.
But KHC has seen some buyers of late. The first of of our big stock charts shows a breakout that has been textbook from a technical standpoint. And there are reasons to see the rally continuing if KHC stock can avoid a stall here:
- Since KHC stock failed at resistance in August, the chart generally has looked bullish. The stock reversed out of a narrowing descending wedge. It then challenged resistance just above $32 — and at least for now, has moved through that level to a six-month high.
- KHC stock also has cleared all three moving averages, removing potential sources of resistance on the chart. But shares need to get fully clear of the 2019 resistance level. Another failure would be a disappointment and create a path for a reversal. If KHC dips back toward the bottom of the current ascending triangle (a move below $30), technically-focused shorts actually would see an attractive entry point. The next few sessions thus look key.
- Fundamentally, the case is a little trickier. I argued in January that Kraft Heinz stock was a fallen angel worth buying. But August earnings significantly undercut the case. Debt still is a concern and growth is muted: this is a turnaround story with real risk.
- That said, even after the bounce KHC stock is cheap at less than 13x forward earnings. A 4.8% dividend yield will attract income investors as well. There’s at least enough of a fundamental case that suggests the breakout can continue. But this is not the safe, “set it and forget it” play that Kraft and Heinz were as separate entities. Investors need to watch the chart, and Kraft Heinz earnings, closely.
The technical picture for Wabtec (NYSE:WAB) seems relatively simple. But combined with external factors, the second of our three big stock charts gets interesting:
- Obviously, the core question here is whether WAB stock finally can break through resistance that has held at $78. WAB stock has failed on several occasions, and each time the reversal has been swift and significant. Moving averages closer to $70 suggest a similarly sharp decline if WAB can’t break out this week.
- But there’s a reason to suggest that WAB can bust through its ceiling this time around. Economically-sensitive industrials like Wabtec are performing very well. Laggards General Electric (NYSE:GE), which merged its train engine business with Wabtec last year, and 3M (NYSE:MMM) have rallied nicely of late. So has Honeywell (NYSE:HON).
- If investors are looking for value elsewhere in the group, WAB stock would be an interesting pick. That suggests that WAB might finally be set for a new 52-week high — and that the rally in recent sessions can continue.
Regeneron Pharmaceuticals (REGN)
As with KHC and WAB, the breakout in Regeneron Pharmaceuticals (NASDAQ:REGN) of late seems almost textbook. REGN saw nice gains following a reversal of its downtrend. But a 2%-plus decline on Wednesday makes the third of our big stock charts look weaker:
- It now looks like the 200-day moving average has acted as resistance for REGN stock in recent sessions. And given that the 200DMA is going to come down for some time to come, given recent trading, that suggests shares could fade further.
- Worth noting: that’s not just a Wednesday issue. REGN stock was up 10% at its highs on Tuesday after a Q3 earnings beat. It’s pulled back 5.5% from that midday peak. Clearly, post-earnings optimism is receding.
- REGN stock admittedly can’t be written off. At 13x forward earnings, the stock is cheap. The pending acquisition of Celgene (NASDAQ:CELG) by Bristol-Myers Squibb (NYSE:BMY) raised hopes that Regeneron, too, could be a takeover target. Wall Street still likes the stock, and Q3 earnings were strong. But REGN hit a five-year low in late September, and the bounce since might be all REGN can hope for, at least in the near-term.
As of this writing, Vince Martin has no positions in any securities mentioned.