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1 Stock to Buy, 1 Stock to Sell This Week: CrowdStrike, Nio

Published 03/03/2024, 11:05
  • Powell testimony, U.S. jobs report, last batch of Q4 earnings will be in focus this week.
  • CrowdStrike (NASDAQ:CRWD) is a buy with strong earnings and guidance on deck.
  • Nio (NYSE:NIO) is a sell with downbeat earnings expected.
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  • U.S. stocks finished higher on Friday to notch another winning week as the S&P 500 and Nasdaq Composite both ended at new records amid an ongoing rally in AI-linked tech shares.

    For the week, the benchmark S&P 500 rose 1%, the tech-heavy Nasdaq advanced 1.7%, while the blue-chip Dow Jones Industrial Average dipped 0.1%.

    Source: Investing.com

    The week ahead will feature key Congressional testimony from Federal Reserve Chairman Jerome Powell as investors look for more clues on the outlook for the economy, inflation, and interest rates.

    Elsewhere, most important on the economic calendar will be Friday’s U.S. employment report for February, which is forecast to show the economy added 188,000 positions, compared to jobs growth of 353,000 in January. The unemployment rate is seen holding steady at 3.7%.

    Weekly Economic Calendar

    Source: Investing.com

    Meanwhile, some of the key earnings reports to watch include updates from Broadcom (NASDAQ:AVGO), Marvell Technology (NASDAQ:MRVL), CrowdStrike, and MongoDB (NASDAQ:MDB). Consumer heavyweights Target (NYSE:TGT), Costco (NASDAQ:COST), Abercrombie & Fitch (NYSE:ANF), and Foot Locker (NYSE:FL) also head into the earnings confessional as Wall Street’s Q4 reporting season draws to a close.

    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 4 - Friday, March 8.

    Stock to Buy: CrowdStrike

    I foresee a strong performance for CrowdStrike this week, with a potential breakout to a new record high on the horizon, as the information security specialist’s latest earnings and outlook will easily top estimates due to favorable cybersecurity demand trends.

    The Austin, Texas-based security software company is scheduled to deliver its fourth quarter update after the U.S. market closes on Tuesday at 4:05PM ET, and results are likely to have been boosted by the ongoing surge in cyber spending from corporations and governments as they respond to growing digital security threats.

    Market participants expect a sizable swing in CRWD stock following the print, as per the options market, with a possible implied move of roughly 12% in either direction. Notably, shares rallied 11.6% after the company’s last earnings report in late November.

    Not surprisingly, an InvestingPro survey of analyst earnings revisions points to mounting optimism ahead CrowdStrike’s Q4 update, as Wall Street grows increasingly bullish on the cybersecurity company. The last four EPS revisions from analysts have all been to the upside, while 48 out of the 51 analysts covering CRWD have either a ‘Buy’-equivalent or ‘Hold’-rating on the stock.CrowdStrike Earnings Page

    Source: InvestingPro

    CrowdStrike is seen earning $0.82 a share, rising 75% from EPS of $0.47 in the year-ago period. Meanwhile, revenue is forecast to increase 32% year-over-year to $840 million thanks to growing demand for its ‘Falcon’ cloud-based cybersecurity platform, which is used to detect and prevent security breaches.

    It should be noted that CrowdStrike has a long history of beating Wall Street’s quarterly estimates for both the top-and bottom-line, doing so in every quarter since it went public in June 2019, underscoring the endpoint security leader’s strong fundamentals and long-term growth prospects.

    But as is usually the case, it is more about guidance than results. Taking that into account, I reckon CrowdStrike CEO George Kurtz will provide an upbeat outlook as growth in annual recurring revenue accelerated. As cybersecurity remains a top priority for businesses worldwide, Crowdstrike's cutting-edge technology and robust growth trajectory are likely to persist amid the uncertain geopolitical climate.CrowdStrike Chart

    Source: Investing.com

    CRWD (NASDAQ:CRWD) stock ended Friday’s session at $314.60, a tad below its record high of $338.45 reached on February 15. At its current valuation, CrowdStrike has a market cap of about $76 billion.

    Shares of the high-flying tech darling are up around 23% since the start of the year, after ending 2023 with a whopping gain of approximately 142%.

    It should be noted that InvestingPro’s ProTips also highlights several additional tailwinds Crowdstrike has going for it, including a healthy profitability outlook, strong sales prospects, rising net income, and solid cash flow growth.

    Stock to Sell: Nio

    I foresee a tough week ahead for Nio, potentially leading to a dip to fresh lows in the upcoming days, as the struggling Chinese electric vehicle maker’s latest earnings and guidance will probably underwhelm investors due to the negative impact of various headwinds on its business.

    Nio is scheduled to release its fourth quarter update ahead of Tuesday's opening bell at 4:30AM ET and results are likely to take a hit from the ongoing price war in the Chinese EV industry sparked by Tesla’s price-slashing strategy. That has forced Nio to cut prices on its vehicles, thus putting pressure on its margins.

    As per the options market, traders are pricing in a sizable swing of roughly 13% in either direction for NIO stock after the earnings come out. Shares climbed about 6% after the Shanghai-based EV company’s Q3 results came out in December.

    Ahead of the report, analysts have slashed their EPS estimates three times in the last 90 days, according to InvestingPro, compared to zero upward revisions, to reflect a drop of almost 125% from their initial profit forecasts.Nio Earnings Page

    Source: InvestingPro

    Nio is seen losing -$0.32 a share (¥2.29) in the fourth quarter, compared to a net loss of -$0.43 (¥3.07) in the year-ago period, as it continues to spend heavily to fend off competition from domestic rivals such as BYD (SZ:002594), Li Auto (NASDAQ:LI), Xpeng (NYSE:XPEV), as well as more established global automakers, including Tesla (NASDAQ:TSLA), Volkswagen (ETR:VOWG_p), and BMW (ETR:BMWG).

    Meanwhile, revenue is forecast to increase 4.8% annually to $2.37 billion (¥16.82 billion), however that would mark a sharp slowdown from the sales growth of 47% seen in the previous quarter as Nio struggles in the face of weakening demand amid a deteriorating EV market.

    That leads me to believe that there is a growing downside risk that Nio could cut its sales guidance and delivery outlook for the rest of the year.Nio Chart

    Source: Investing.com

    NIO stock (NYSE:NIO) closed at $5.77 on Friday, not far from its record low of $5.30 touched on February 5. At current valuations, Nio has a market cap of $12 billion.

    Shares have gotten off to a downbeat start in 2024, tumbling 36.3% year-to-date, amid an aggressive reset in valuations throughout the entire EV sector.

    Underscoring the negative impact of several near-term headwinds, Nio currently has an extremely poor InvestingPro ‘Financial Health’ score of 1.5 out of 5.0 due to ongoing concerns on profitability and sales growth, as well as weakening gross profit margins, and shrinking free cash flow. The company has yet to turn a profit since it was founded in 2014.

    Be sure to check out InvestingPro to stay in sync with the market trend and what it means for your trading.

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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 (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.

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