For Immediate Release
Chicago, IL – April 10, 2023 – Zacks Equity Research shares Hello Group MOMO as the Bull of the Day and Walker & Dunlop WD as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Barrick Gold GOLD, Kinross Gold KGC and Royal Gold RGLD.
Here is a synopsis of all five stocks:
Bull of the Day:
Hello Group, a Zacks Rank #1 (Strong Buy), has rallied strongly since bottoming out in May of last year. After a pullback into March, the bullish phase for MOMO stock looks set to continue as it has been hitting a series of higher highs on increasing volume. Shares have also benefited from a resurgence in emerging market equities.
MOMO is ranked favorably by our Zacks Style Scores with a best-in-class 'A' rating in each of our Zacks Value and Momentum categories. This indicates further upside is likely based on relative strength and promising valuation metrics. The company is part of the Zacks Internet – Software industry group, which currently ranks in the top 20% out of approximately 250 Zacks Ranked Industries. Because this group is in the top half of all industries, we expect it to outperform the market over the next 3 to 6 months, just as it has year-to-date.
Historical research studies suggest that approximately half of a stock's price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It's no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Hello Group provides mobile-based social and entertainment services in the People's Republic of China. Its Momo platform includes a mobile application that connects people and facilitates interactions based on locations and interests. MOMO also operates Tantan, a social and dating application that enables users to find each other and establish relationships, while also providing live video and chatrooms.
In addition, MOMO's platform allows its users to livestream a variety of content and activities such as talent shows, singing, dancing, mobile karaoke, online parties, and other video and audio-based interactive experiences. Formerly known as MOMO Inc., the company changed its name to Hello Group in August 2021. Hello Group was incorporated in 2011 and is headquartered in Beijing.
Earnings Trends and Future Estimates
MOMO has surpassed earnings estimates in each of the past four quarters, with an average earnings surprise of 31.94%. The social entertainment company most recently reported fourth-quarter earnings back in March of $0.36/share, beating the Zacks Consensus Estimate of $0.26 by 38.46%.
Analysts covering Hello Group are in agreement and have raised their future earnings estimates across the board. Looking into the current year, analysts have raised their 2023 EPS estimates by 29.51% in the past 60 days. The Zacks Consensus Estimate now stands at $1.58/share, reflecting potential growth of 18.8% relative to last year.
Let's Get Technical
MOMO shares have advanced more than 100% off the bottom from last year. Only stocks that are in extremely powerful uptrends are able to make this type of price move while the general market remains volatile. This is the kind of stock we want to include in our portfolio – one that is outperforming and receiving positive earnings estimate revisions.
After a pullback into March, the stock has been making a series of higher highs and appears set to resume its uptrend. With both strong fundamentals and technicals, MOMO is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Hello Group has recently witnessed positive revisions. As long as this trend remains intact (and MOMO continues to deliver earnings beats), the stock will likely continue its bullish run this year.
MOMO boasts a best-in-class 'A' rating for our overall VGM Zacks Style Score. The Zacks Rank #1 (Strong Buy) stock has vastly outperformed the market over the past year. A resurgence in emerging market stocks adds to the bullish sentiment.
Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix. Backed by a leading industry group and healthy history of earnings beats, it's not difficult to see why this company is a compelling investment. Investors would be wise to consider MOMO as a portfolio candidate if they haven't already done so.
Bear of the Day:
Walker & Dunlop originates, sells, and services a range of multifamily and other commercial real estate financing products and services for owners and developers in the United States. The company offers first mortgage, second trust, supplemental, construction, mezzanine, preferred equity, and small-balance loans. WD also provides financing for manufactured housing, student housing, affordable housing, and senior housing.
The company also offers appraisal, market research, and valuation services, in addition to real estate-related investment banking and advisory services. WD originates loans through its principal lending and investing arm. Walker & Dunlop was founded in 1937 and is based in Bethesda, MD.
The Zacks Rundown
WD, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Financial – Mortgage & Related Services industry group, which ranks in the bottom 15% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months.
Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Along with many other financial-related stocks, WD has been underperforming this year as recent banking failures have put a dent on the whole financial sector. The share price is hitting a series 52-week lows and represents a compelling short opportunity as the market remains volatile.
Recent Earnings Misses & Deteriorating Outlook
WD has fallen short of earnings estimates in three of the past four quarters. The company most recently reported a Q4 profit of $1.41/share back in February, missing the $1.55/share consensus EPS estimate by -9.03%. The stock has moved steadily lower since the announcement.
Over the past three quarters, WD has delivered an average earnings miss of -5.58%. Consistently falling short of earnings estimates is a recipe for underperformance, and Walker & Dunlop is no exception.
WD has been on the receiving end of negative earnings estimate revisions as of late. Looking into the current quarter, analysts have decreased Q2 estimates by -26.37% in the past 60 days. The Zacks Consensus EPS Estimate is now $1.34/share, reflecting a -16.77% regression relative to the same quarter in the prior year.
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
WD is in a sustained downtrend. WD has plunged below important technical levels in the 50-day and 200-day moving averages. The stock is making a series of lower lows, with no respite from the selling in sight.
While not the most accurate indicator, WD has also experienced what is known as a 'death cross,' wherein the stock's 50-day moving average crosses below its 200-day moving average. WD would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen more than 40% in the past year alone.
A deteriorating fundamental and technical backdrop show that this stock is not set to build upon its former highs anytime soon. The fact that WD is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock's downtrend.
A series of 52-week lows indicate the downtrend is likely far from over. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of WD until the situation shows major signs of improvement.
3 Stocks to Gain as Recession Risk Propels Gold Prices Higher
Gold prices traded above the psychological $2,000 level on Apr 5, and touched intraday highs after a slew of discouraging economic reports sparked recession concerns. This supported the yellow metal's appeal as a safe-haven investment.
Growth in the U.S. service sector slowed much more than estimated in March. The Institute of Supply Management (ISM) noted that its Services Purchasing Managers' Index (PMI) slipped to 51.2% in March from February's 55.1%. Economists had expected the pace of growth in the service sector to slow down to 54.5%. A slowdown in the pace of growth in new orders was primarily responsible for the more-than-expected decrease in growth in the service sector.
On the other hand, the manufacturing sector is in the contraction territory. The ISM's manufacturing PMI declined to 46.3% in March, its lowest since May 2020. Needless to say, any reading below 50% indicates contraction.
What's more, the ISM's index of new orders also dropped to 44.3% last month from 47% in February. The Commerce Department had already stated that orders for factory goods in the United States have already declined for the second straight month in February.
Now, shrinking new orders is mostly associated with the recession, and such concerns have led to bouts of volatility in the stock market lately. But gold is a safe haven, and therefore sees its prices hover near an all-time settlement high amid unfavorable economic conditions.
The June gold futures contract traded at $2,038.40 on Apr 5, not far from its all-time record-high settlement of $2,069.40 achieved on Aug 6, 2020, added the Dow Jones Market Data.
Meanwhile, weakness in the U.S. economy has now compelled the Federal Reserve to press the pause button on further interest rate increases. Fed officials may have raised the interest rates by 25 basis points in their last meeting, however, most market participants expect the central bank officials not to hike interest rates in May. And such a decrease in expectations of a rate hike helped keep gold prices high as well. After all, lower interest rates won't lead to money flowing out of gold and into high-yielding, fixed-income investments.
And as the bullion metal glitters, gold mining stocks like Barrick Gold, Kinross Gold and Royal Gold have a fair chance to gain. These stocks, currently, possess a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here.
Barrick Gold is the largest gold mining company in the world and has mining operations in the United States. The Zacks Consensus Estimate for its current-year earnings has moved up almost 6% over the past 90 days. The company's expected earnings growth rate for the current year is 18.7%. Its estimated earnings growth rate for the next year is nearly 18%.
Kinross Gold holds major assets in Canada, and the United States, and is primarily involved in the exploration and operation of gold mines. The Zacks Consensus Estimate for its next-quarter earnings has moved up 14.3% over the past 90 days. The company's expected earnings growth rate for the current year is 45.5%. Its estimated earnings growth rate for next year is 46.9%.
Royal Gold acquires and manages precious metals stream and royalty interests, with a primary focus on gold. The Zacks Consensus Estimate for its current-year earnings has moved up 2.7% over the past 90 days. The company's expected earnings growth rate for the current year is 9.9%. Its estimated earnings growth rate for next year is 11.9%.
Shares of Barrick Gold, Kinross Gold and Royal Gold have already gained 14.6%, 23.5% and 21%, respectively, so far this year.
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