- U.S. jobs report, PMI surveys, last batch of earnings will be in focus this week.
- Nvidia is a buy ahead of its 10-for-1 stock split.
- Dollar Tree is a sell with downbeat earnings, guidance on deck.
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U.S. stocks closed mostly higher on Friday, with the Dow Jones Industrial Average scoring its best session of the year as investors digested an inflation report and assessed when the Federal Reserve might begin cutting interest rates.
The major indexes were down for the week, however, with the tech-heavy Nasdaq Composite falling 1.1%, while the benchmark S&P 500 and blue-chip Dow declined 0.5% and 0.9% respectively.
Source: Investing.com
Despite the challenging week, it was a winning May, with all three benchmarks registering a sixth positive month in seven. For the month, the Dow advanced 2.4%, while the S&P 500 rose about 4.8%. The Nasdaq jumped 6.9%, notching its best month since November 2023.
The week ahead is expected to be another busy one as investors continue to gauge the path for the Federal Reserve’s interest rate outlook.
Most important on the economic calendar will be Friday’s U.S. employment report for May, which is forecast to show the economy added 185,000 positions, compared to jobs growth of 175,000 in April. The unemployment rate is seen holding steady at 3.9%.
Ahead of the jobs report, the ISM manufacturing and services PMIs will also be closely watched.
Source: Investing.com
Meanwhile, Fed officials will be in a blackout period ahead of the U.S. central bank’s policy meeting scheduled for May 1.
Traders now see about a 55% chance of the first rate cut hitting in September, according to the Investing.com Fed Monitor Tool.
Meanwhile, some of the key earnings reports to watch include updates from CrowdStrike (NASDAQ:CRWD), Hewlett Packard Enterprise (NYSE:HPE), Lululemon (NASDAQ:LULU), Dollar Tree (NASDAQ:DLTR), and Nio (NYSE:NIO).
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, June 3 - Friday, June 7.
Stock to Buy: Nvidia
I expect Nvidia’s stock to continue its upward trend as investors look ahead to the AI-focused chip giant’s highly anticipated ten-for-one stock split, due to take effect at the end of the week.
The Santa Clara, California-based tech behemoth announced the split - its second in less than three years - in its first quarter earnings update on May 22.
According to the proposal, each stockholder of record as of the market close on Thursday, June 6, will receive a ‘dividend’ of nine additional NVDA shares after the close on Friday, June 7.
Nvidia (NASDAQ:NVDA) will then begin trading on a ten-to-one stock split basis when the market opens on Monday, June 10, essentially making shares cheaper by a tenth of what they used to be.
As such, NVDA stock, which ended at $1,096.33 on Friday, will carry a price tag of roughly $110 after the stock split.
Source: Investing.com
While stock splits are typically non-events for investors and have no impact on the company’s underlying fundamentals and valuation, it makes shares less expensive and more accessible to retail traders and individual investors.
Indeed, the last time Nvidia split its stock - four-for-one in July 2021 - investors enjoyed nearly a 12% return in just one month following the split.
It should also be noted that Nvidia’s stock split could potentially pave the way for the semiconductor company's inclusion in the Dow Jones Industrial Average.
Besides the stock-split, another positive catalyst that could boost investor sentiment will be CEO Jensen Huang’s keynote speech at the annual ‘Computex 2024’ trade show in Taiwan, which runs Sunday through Friday in Taipei.
Huang is scheduled to kick off the electronics showcase event with a speech on Sunday at which he is likely to tout the company’s AI capabilities as well as new collaborations.
The AI poster boy reported blockbuster results for the first quarter last month thanks to unprecedented demand for its H100, A100, and new Blackwell graphics processing units (GPUs).
NVDA stock closed Friday’s session just below its all-time high of $1,158.19 reached on May 30. At current levels, the red-hot AI-chip manufacturer has a market cap of $2.7 trillion, making it the third most valuable company trading on the U.S. stock exchange after Microsoft (NASDAQ:MSFT), and Apple (NASDAQ:AAPL).
Shares have more than doubled this year, climbing 121.4% in 2024, fueled by excitement about the company’s leading role in artificial intelligence.
Source: InvestingPro
It is worth mentioning that Nvidia has a perfect ‘Financial Health Score’ of 5 out of 5, as assessed by InvestingPro's AI-backed models, highlighting its robust growth prospects.
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Stock to Sell: Dollar Tree
I believe Dollar Tree will suffer a difficult week ahead as the struggling discount variety store’s latest earnings and outlook will underwhelm investors due to the negative impact of several headwinds on its business.
The Chesapeake, Virginia-based retail chain is scheduled to deliver its first quarter update before the U.S. market opens on Wednesday at 6:30AM ET and results are expected to take a hit from rising operating costs and stiff competition from bigger retailers, such as Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN), and Chinese e-commerce platform Temu.
As could be expected, an InvestingPro survey of analyst earnings revisions points to mounting pessimism ahead of the print. All 17 analysts covering the company slashed their profit estimates in the past 90 days as Wall Street grows increasingly bearish on the discount retailer.
Market participants expect a sizable swing in DLTR shares after the report drops, with a possible implied move of 9% in either direction as per the options market. Notably, the stock tumbled 16% after its last earnings report in March.
Source: InvestingPro
Dollar Tree - which operates roughly 16,000 stores across the U.S. - is expected to deliver Q1 earnings per share of $1.43, dipping 2.7% from EPS of $1.47 in the year-ago period.
Meanwhile, revenue is seen rising 4.6% annually to $7.66 billion.
Looking ahead, it is my belief that Dollar Tree’s management will provide weaker-than-expected 2025 sales and profit guidance to reflect a decline in customer traffic at its stores and weak consumer spending amid the uncertain macro climate.
DLTR stock ended Friday’s session at $117.95, just above its 2024 low of $112.35 touched on May 29. At current valuations, Dollar Tree has a market cap of $25.7 billion, making it the second largest U.S. dollar store and one of the biggest discount retailers in the country.
Source: Investing.com
Shares are down 17% year-to-date, significantly underperforming the broader market, due to worries over weakening profit margins, spotty sales growth, and declining free cash flow.
With that being noted, DLTR stock is still considerably overpriced, as per the AI-powered quantitative models in InvestingPro. Its ‘Fair Value’ price target stands at $104.58, which points to a potential downside of -11.3%, underlining the risks associated with the stock.
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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 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.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.