- Core PCE inflation, Fed speakers will be in focus this week.
- Carnival is a buy with strong earnings and guidance on deck.
- Walgreens Boots Alliance is a sell with weak earnings expected.
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Wall Street’s three major indexes closed mixed on Friday to notch their best week of 2024 after the Federal Reserve stuck with projections for three interest rate cuts by year's end and amid continued optimism over artificial intelligence.
For the week, the benchmark S&P 500 rallied 2.3% in its biggest weekly percentage gain since mid-December.
Meanwhile, the tech-heavy Nasdaq Composite and the blue-chip Dow Jones Industrial Average rose 2.9% and 2% respectively.
Source: Investing.com
The holiday-shortened week ahead - which will see U.S. stock markets closed on Friday for the observance of the Good Friday holiday - is expected to be a busy one as investors continue to assess how much juice is left in the AI-inspired rally on Wall Street and when the Fed will start cutting interest rates.
Most important on the economic calendar will be Friday’s core personal consumption expenditures (PCE) price index, which is the U.S. central bank’s preferred inflation measure. In addition, there is also important fourth quarter GDP data due on Thursday.
Source: Investing.com
Those releases will be accompanied by a heavy slate of Fed speakers, with the likes of district governors Raphael Bostic, Christopher Waller, and Mary Daly set to make public appearances following last week's FOMC meeting.
Meanwhile, Fed Chairman Jerome Powell will participate in a moderated discussion before the Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference.
Traders now see about a 75% chance of the first rate cut hitting in June, according to the Investing.com Fed Monitor Tool.
Elsewhere, on the earnings docket, there are just a handful of corporate results due, including Walgreens Boots Alliance (NASDAQ:WBA), GameStop (NYSE:GME), and Carnival (NYSE:CCL).
Regardless of which direction the market goes, below I highlight one stock likely to be in demand and another which could see fresh downside. Remember though, my timeframe is just for the week ahead, Monday, March 25 - Friday, March 29.
Stock to Buy: Carnival
I expect Carnival (NYSE:CCL) to outperform this week, as the cruise line operator’s latest earnings report will surprise to the upside in my opinion thanks to favorable consumer travel demand trends.
The Doral, Florida-based cruise company is scheduled to deliver its first quarter update before the U.S. market opens on Wednesday at 9:15AM ET.
Market participants expect a sizable swing in CCL shares, as per the options market, with a possible implied move of about 10% in either direction. Notably, the stock gained almost 5% after its last earnings report in December.
Source: InvestingPro
Wall Street sees Carnival losing $0.18 per share, narrowing dramatically from a loss per share of $0.55 in the year-ago period, as profitability trends continue to recover from the Covid-19 pandemic.
Meanwhile, Carnival’s revenue is forecast to increase 22.7% year-over-year to $5.44 billion, as travelers flock to its cruises amid the ongoing improvement in tourism trends.
Despite seeing five out of the seven analysts surveyed by InvestingPro downwardly revise their sales forecast ahead of the report, estimates are still higher than they were previously.
As such, I believe Carnival’s CEO Josh Weinstein will provide an upbeat outlook for the months ahead to reflect strong forward booking levels and ticket demand as the key summer holiday travel season approaches.
Source: Investing.com
CCL ended at $17.09 on Friday, its highest close since January 19. At current levels, Carnival has a market cap of $21.3 billion, earning it the status as the second most valuable cruise operator in the world, behind Royal Caribbean Cruises (NYSE:RCL).
Cruise line stocks have surged in the past year as they benefit from pent-up demand for international travel delayed by pandemic lockdowns.
Royal Caribbean's shares have gained 124% in the last 12 months, which Carnival and Norwegian Cruise Line (NYSE:NCLH) are up 90% and 66% in the same period.
As ProTips points out, Carnival’s share profile is fairly positive, with several bullish tailwinds working in its favor, including an improving profitability outlook, and rising net income prospects.
Stock to Sell: Walgreens Boots Alliance
I believe Walgreens Boots Alliance (NASDAQ:WBA) will suffer a disappointing week ahead, with a potential breakdown to fresh lows on the horizon, as the struggling pharmacy store chain’s earnings and guidance will likely underwhelm investors.
Walgreens’ update for its fiscal second quarter is scheduled to come out before the U.S. market opens on Thursday at 7:00AM ET, and results are expected to take a hit from a decline in customer traffic at its stores as it continues to lose market share to rivals.
Underscoring several near-term challenges facing Walgreens amid the current environment, nine out of the ten analysts surveyed by InvestingPro cut their profit estimates in the past 90 days to reflect a drop of roughly 33% from their initial expectations.
As per the options market, traders are pricing in a swing of about 9% in either direction for WBA stock following the release. Notably, shares fell 2.2% after the company’s fiscal Q1 report in January. 
Source: InvestingPro
The Deerfield, Illinois-based company is seen earning $0.83 per share, tumbling 28.5% from EPS of $1.16 in the year-ago period, amid higher cost pressures and declining operating margins.
Meanwhile, revenue is forecast to inch up 2.6% year-over-year to $35.8 billion, as it deals with low consumer spending, a drop in Covid-19 product sales and a slow ramp-up of its new healthcare unit.
Taking that into account, I believe there is a growing downside risk that Walgreens could lower its full-year outlook as it continues to spend heavily on a transformation from a retail drugstore chain operator and pharmacy services provider into a full-service health care company.
Source: Investing.com
WBA stock closed Friday’s session at $20.58, not far from a recent low of $19.68, which was the weakest level since October 1998. At its current valuation, the pharmacy chain store has a market cap of $17.7 billion.
Walgreens was kicked out of the Dow Jones Industrial Average last month, losing its spot in the blue-chip index to Amazon (NASDAQ:AMZN). It should be noted that the company was the Dow’s worst performer of 2023, plunging 30%. Shares are down another 21% so far in 2024.
Not surprisingly, Walgreens has a poor InvestingPro ‘Financial Health’ score of 1.7 out of 5.0 due to fears over its significant debt burden, and downbeat profit and sales growth prospects.
Furthermore, Walgreens’ balance sheet is a cause of great concern, as the company - which nearly halved its dividend payout in January - burns capital at a worryingly high rate. Walgreens had previously increased its dividend for 47 consecutive years.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY (NYSE:SPY)), and the Invesco QQQ Trust ETF (NASDAQ:QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.