We were all set up for a great week last week with the beginning of earnings season, but then the reports about the coronavirus impacted the market hard. There was red across the board in all the indices.
Am I worried? Not really. I believe the fear will subside and the market will pick right back up, especially with some of the bigger earnings reports this week, such as from Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), and Microsoft (NASDAQ:MSFT).
However we could see a few more days of downside depending on how the news on the coronavirus is. Keep that in mind with this week’s stock.
Previous Pick: [quote symbol=”PCG” attribute=”companyName”/] (NYSE:PCG)
- Loading stock data...
PCG just performed beautifully last week. It rose $1.19 to $14.27. That’s a gain of over 9% in a single week.
It just received an upgrade by Mizuho Securities from a “neutral” rating to a “buy” rating, so it’s likely there’s even more upside. Plus, Zacks has revised their price target to $15 (seeing as it blew past their previous target of $14). Currently it has an average price target of $15.22, and a high target of $21.
The chart is looking even better than last week. Check out the average directional index indicator:
Notice the trend is strengthening. The ADX line is just about at 22 (over last week’s 17), and moving higher. It’s not quite at the 25 point yet that confirms a strong trend, but I suspect we’ll be there soon, especially with the high divergence between +DMI and -DMI.
Even more interestingly, PCG was barely touched by the coronavirus panic. When almost all the other stocks in my portfolio were red, PCG was still gaining.
New Pick: [quote symbol=”LM” attribute=”companyName”/] (NYSE:LM)
- Loading stock data...
Data as of January 24, 2020
- Company name: Legg Mason, Inc.
- Exchange: New York Stock Exchange
- Last close: $38.86
- 52 week low: $26.36 (2019-03-25)
- 52 week high: $40.27 (2019-09-12)
- Employees: 3,246
- sector: Finance
- Industry: Investment Managers
- CEO: Joseph Andrew Sullivan
- website: http://www.leggmason.com
- Peers: IVZ, BEN, MN, AB, BLK, EV, GROW, WDR, VRTS, AMG
- Ticker: LM
- Market cap: 3.4B
- Avg. volume: 753,532
- Zacks Rank: 2 (Buy)
- YTD change: 7.41%
- Beta: 1.12
- Forward P/E ratio: 10.65
- P/S ratio: 1.16
- PEG ratio: -3.34
- Div. yield: 3.81%
- Next earnings date: 2020-01-29
Legg Mason, Inc. provides securities brokerage, trading and investment services. The firm’s segment includes Global Asset Management. The segment: Global Asset Management provides investment advisory services to institutional and individual clients and to company-sponsored investment funds. It also offers Mutual Funds, ETFs, Closed-End Funds, Managed Accounts, Money Market Funds, Variable Investments and 529 College Savings Plans. The company was founded in 1981 and is headquartered in Baltimore, MD.
Why I Like Them
I’ve had my eye on LM for a while, but haven’t made a move until now for reasons I’ll discuss later.
But it came to my attention because its fundamentals are strong. It’s forward P/E is 10.65, right in line with its industry’s average of 10.46. But it’s price-to-sales is only 1.16, beating its industry’s average of 2.51. It’s gained 7.18% YTD, compared to just 0.83% for its industry.
Of course, it has a Zacks Rank #2 (Buy), and a price target of $40. Several analysts have revised their estimates upwards for both Q1 (current fiscal quarter) and Q2 (next quarter).
Finally, LM is reporting earnings after the market closes on the 29th, and it’s expected to have a positive earnings surprise.
Now on the technical side, I was hesitant to jump into this for a while. To illustrate why, I’ve included both the 20-day and 50-day moving averages in the chart above.
You can see it’s currently above the 20-day SMA, though it traded below it for a while. However the 20-day is actually below the 50-day average, and the stock was trading below both of those since about mid-December.
It made a few attempted breakouts starting around the 15th, and finally just last week it broke above the 50 day trend and seemed to gain momentum.
In fact you can see confirmation of this from the ADX. It actually just recovered from a pretty strong downtrend (notice ADX was over 25 and -DMI was clearly above +DMI). The DMI lines crossed around January 15 and now have been diverging the other direction.
But until just last week, ADX was still trending downwards. You can see it just started to head up a bit right towards the end of last week.
So just like with PCG last week, this is a bit of a riskier one, but after coming off the 50-day SMA, I see LM trending higher, of course depending on the earnings report this week. I’d think about selling, though, if it drops back down to the 50-day trend.
PCG was extremely strong last week, gaining over 9% despite the coronavirus scare. Analysts seem to expect it to move even higher though, possibly up to $15.22 or above.
LM experienced weakness for a few months, but started gaining upwards momentum as of mid-January. As long as it stays above the 50-day moving average, things should be looking pretty good.
Would you be interested in following my portfolio more closely? The current stocks in my private portfolio have gained 53.54% in the last year, beating the S&P 500 by over 80%. I’m gauging interest for a stock newsletter where you’d see all the stocks I’m recommending. If interested, please contact me.