February has been a strong month for the stock market, with the S&P 500 and Dow up more than 4% so far. However, the market began consolidating yesterday and that consolidation accelerated today.
The good news is that the selling came on light volume, which means there’s no panic selling. A high-volume selloff would be much more serious because the selling pressure would likely continue and trigger a deeper correction.
There are three main factors behind the recent selling. So, in today’s Market360 article, let’s take a look at each.
The Fourth-Quarter Earnings Season
First of all, at the end of any earnings announcement season, the market likes to “burp” and digest its gains. The fourth-quarter earnings announcement season has been particularly stunning, as S&P 500 earnings and sales are expected to rise 2.9% and 2.8%, respectively. As you may recall, earnings and sales were initially expected to be down for the quarter.
A Change in Leadership
The second factor is the change in leadership. You may have noticed that some of the big NASDAQ names are growing tired. For example, Tesla (TSLA) hasn’t traded well these past two weeks. The reality is that it’s beginning to lose some of its luster as more competition from auto manufacturers is mounting.
Case in point: On Sunday, General Motors (GM) revealed two new Chevy Bolts, a hatchback and a compact SUV. These are electric vehicles (EVs) and only cost around $30,000.
Keep in mind that Tesla is not making money on EVs but instead has been selling carbon credits to other manufacturers. This way they can meet California and European Union (EU) emission standards. So another issue is that as more competitors begin selling EVs, it’s possible that Tesla will receive fewer tax credits, which will weigh on its bottom line. Remember, in Tesla’s most-recent quarter, the company received $401 million in tax credits in the fourth quarter and posted $270 million in earnings. For all of 2020, Tesla received $1.58 billion in tax credits. In other words, it remains entirely dependent on government regulations.
Rising Interest Rates
The third factor is interest rates, as the 10-year Treasury yield is sitting around 1.3%. The problem is that the stock market competes with the bond market. In theory, the bond market could divert some money away from the stock market as yield-hungry investors chase the higher yields in Treasuries. However, the Dow and S&P 500 continue to yield significantly more than the 10-year Treasury, with the Dow’s yield at 2.4%.
I should also add that inflation is starting to materialize. This week’s producer price index (PPI) report was very disappointing, as the PPI increased 1.3% in January. In the past 12 months, PPI has climbed 1.7%. Clearly, inflation is accelerating due to the weak U.S. dollar, which is creating commodity inflation. In turn, energy prices were also high and may continue to rise due to the winter storms across the country.
The truth of the matter is Wall Street loves to climb a wall of worry, and it has plenty to worry about right now.
Personally, I’m not concerned, as money is not leaving the market. This consolidation period shouldn’t last more than a couple of weeks, and once the stock market regains momentum, it should grow more narrow and fundamentally focused. This is great for my Accelerated Profits subscribers, as my Accelerated Profits Buy List is chock full of fundamentally superior companies with growing sales and earnings.
Take Kornit Digital Ltd. (KRNT), for example. The stock soared nearly 20% yesterday to a new 52-week high of $120.97 following the company’s record results for the most-recent quarter on Tuesday. Company management noted that the global pandemic revealed inefficiencies in the traditional textile supply chain, and now the digital transformation of this supply chain is being led by Kornit Digital.
Fourth-quarter revenue soared 49% year-over-year to $72.3 million, topping analysts’ estimates for $62.01 million. Earnings per share increased 41.2% year-over-year to $0.24, up from $0.17 per share in the fourth quarter of 2019. Analysts were expecting earnings of $0.22 per share, so Kornit Digital posted a 9.1% earnings surprise.
For fiscal year 2020, Kornit Digital achieved earnings of $9.0 million, or $0.21 per share, and revenue of $193.3 million. That compares to earnings of $19.6 million, or $0.49 per share, and revenue of $179.9 million in full year 2019. These results also beat analysts’ estimates for full-year earnings of $0.16 per share and revenue of $183.59 million.
KRNT is up about 30% year-to-date, and I’m pleased to say that, thanks to my Project Mastermind system, my Accelerated Profits subscribers have been able to enjoy the stock’s climb higher, as it flagged this stock as a good buying opportunity back on November 23, 2020.
But this is far from the only fundamentally superior stock my Project Mastermind system has found. Just yesterday, I released a Buy Alert for two brand-new recommendations based on my Project Mastermind system’s findings. Both companies have triple-digit forecasted earnings growth and have been firing on all cylinders over the past few months.
All told, I have unveiled eight new recommendations in the last four weeks. These stocks have trekked nicely higher since I added them to my Accelerated Profits Buy List, but it’s not too late to jump in. In fact, one of my recommendations from yesterday will not be releasing its quarterly results until early March, so there’s still time to invest before its earnings report dropkicks and drives the stock higher.
The Editor (Louis Navellier) hereby discloses that as of the date of this email, the Editor (Louis Navellier), directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Kornit Digital Ltd. (KRNT)