Once again, U.S. stocks look just a bit wobbly. The signing of a U.S.-China trade deal moved markets higher in early trading, but for the third time in four sessions, major indices faded into the close.
Obviously, there’s no reason for panic. But as we’ve noted in the space in recent days, there is some reason for caution. Trade disputes likely move to the back burner in terms of providing a potential catalyst for the market. Earnings season looms beginning next week. Perhaps expectations are too high — markets still are at all-time highs — but it does seem like optimism has cooled of late.
In the context of that trading, we’ve focused in this space on big stock charts that could be particularly influenced by external conditions. Tuesday’s big stock charts focused on value stocks. Yesterday, we featured three names facing resistance on the chart.
Thursday’s big stock charts are a combination of the two. All three stocks are widely-held large-cap names whose bull cases lean toward the value side of the market. Two of the three are looking for new highs, while another is hoping to mount a charge itself. A tailwind from the broad market certainly would help.
Broadcom (NASDAQ:AVGO) has headed in the wrong direction since its fourth quarter report in December. AVGO stock has pulled back over 8%, while the Philadelphia Semiconductor Index has gained over 3%.
But shares have stabilized of late, and in the middle of a multi-month range are looking for upside:
- As the first of Thursday’s big stock charts shows, AVGO stock right now sits at a key level. $303 provided resistance this summer but has been a support level in the past. Recent trading around that level suggests that AVGO probably is going to make a move. The question might be in which direction.
- The chart does lean moderately bullish, given stabilization in the last few sessions. Support and resistance likely hold at moving averages, with the 200-day around $292 and the 50-day up near $315.
- Still, both technically and fundamentally there’s a bit of a narrow case at the moment. Broadcom stock is attractive from a valuation standpoint, at about 12x fiscal 2021 earnings per share estimates. The Q4 report that catalyzed the sell-off actually looked strong, with management calling a bottom in terms of chip demand.
- But investors have chosen faster-growth names like Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) in recent months. If demand for those names fades, the sector as a whole likely reverses and brings AVGO stock down with it.
Consumer products manufacturer Kimberly-Clark (NYSE:KMB) has staged a nice rally in 2020, gaining 4.7% since trading down over 1% in the year’s first session. As a result, KMB stock is trying to reach new highs — and with some cooperation from the market, it could well do so:
- KMB stock has made a bullish exit out of a narrowing wedge formation, which can lead to a sustained rally. Volume has been solid over that stretch as well. The only question is whether resistance held at similar levels last year will return.
It’s possible it will. KMB stock has struggled to break out for the past few years now. Pressure on consumer stocks amid changes at the retail level has been a factor. So have profits: earnings per share rose just 6% in 2018 (with help from tax reform), with the Street looking for 4% growth in 2019 and 5% in 2020.
- That said, investors have been happy to pay high multiples for consumer plays like Procter & Gamble (NYSE:PG) and Colgate-Palmolive (NYSE:CL). As detailed in Tuesday’s big stock charts relative to Clorox (NYSE:CLX), it doesn’t take that much to change the story enough for either stock to attract similar multiples. KMB shares trade at about 20x EPS estimates, and earnings arrive next week. The company certainly has an opportunity to deliver the type of report that can move its stock through resistance and to new highs.
Pharmaceutical distributor McKesson (NYSE:MCK) has had a strong 2020, gaining 11% in the year’s first ten trading sessions. Raised fiscal 2020 EPS guidance on Monday was one key catalyst in moving MCK stock to 52-week highs. The question now is if a return to past peaks is on the way:
McKesson stock still is down over one-third from 2015 highs. As with KMB, sector performance has been a factor, as many stocks in the sector have struggled amid pricing pressure up and down the supply chain. But MCK stock has found a bottom, rising over 40% from December 2018 lows.
- There’s a case that the rally should continue. McKesson’s liabilities relative to opioid distribution have been a significant concern, but progress on settlements has calmed investor nerves. And even after the recent gains, MCK stock remains reasonably cheap, at a little over 10x the midpoint of its updated EPS guidance.
- And so there’s a path for MCK to keep breaking out. But the stock probably needs some help. Investors need to trust the industry again, which is a work in progress. CVS Health (NYSE:CVS), for instance, has rallied nicely. Walgreens Boots Alliance (NASDAQ:WBA) has faded. Cardinal Health (NYSE:CAH) is somewhere in between. A broader shift to value over growth might help as well. If investors get back to looking for “cheap” stocks, MCK stock at the least will get a look.
As of this writing, Vince Martin has no positions in any securities mentioned.