Ticker Reports for December 2nd
How to Master Trading Discipline: Overcome Emotional Challenges
Volatility refers to the degree of variation in the price or value of an asset, security, or market over a specific period, typically measured by the standard deviation or variance of returns. It reflects the level of risk or uncertainty associated with the asset's price movements. High volatility indicates larger price swings, while low volatility suggests more stable prices. Managing volatility is an essential consideration for all investors, but especially those getting closer to retirement.
A wide number of fundamental factors can create volatility, ranging from economic conditions to earnings reports. And while market volatility can cause investors to pause before entering or exiting a position, there are multiple investing strategies that benefit from quick, short-term price movements. Volatility is not inherently positive or negative, and there are ways to limit the impact of volatility on your portfolio.
Keep reading to learn more about how understanding your risk tolerance, diversifying your portfolio, and implementing effective strategies can help you confidently navigate and manage market volatility.
Understand Your Risk Tolerance and Goals
How much volatility is too much? The answer will vary depending on your unique risk tolerance, i.e., your comfort level when putting money into markets. Volatility tends to be associated with risk and return—meaning that your financial goals will play a major role in the ideal volatility for your portfolio.
For example, if you’re a younger investor, you likely have decades of time left in the market to build wealth. This means your risk tolerance is higher than that of an older investor who is approaching retirement. Defining your investment goals, using a risk questionnaire or consulting with a financial advisor can help you determine your risk tolerance.
Key Strategies for Managing Volatility
Anticipating and managing portfolio volatility becomes more important as you get closer to reaching your financial goals. Use these strategies to incorporate volatility into your investment portfolio at a level that’s suitable for your risk tolerance.
Diversify Your Portfolio
A diversified portfolio helps mitigate the impact of volatility by spreading investments across various asset classes and companies, with each class representing a certain level of volatility. For example, growth stocks like tech stocks tend to show more volatility than consumer staples stocks due to their cyclical nature. Younger investors with higher risk tolerance levels may want to skew assets toward growth stocks while also maintaining a basket of stable assets to lower the overall risk of loss.
Allocate Assets Strategically
Strategic asset allocation involves tailoring your portfolio to match your risk tolerance and financial goals and reallocating assets as your needs change. For example, stocks tend to be more volatile than bonds because they don’t have financial guarantees from issuing bodies. If you’re looking to control volatility, you might invest a higher percentage of assets into stable classes like bonds and real estate.
Get Defensive
A simple way to introduce stability to your portfolio is by investing in a defensive exchange-traded fund (ETF). ETFs hold a series of stocks split among all investors who own shares of the fund, adding instant diversification to your portfolio without individual company research. An example of a defensive ETF is the Invesco S&P 500 Low Volatility ETF (NYSEARCA: SPLV), an S&P 500 index fund weighted to favor less volatile companies.
Hedge Your Risk
“Hedging the market” is an investment strategy that incorporates asset classes that traditionally profit when the overall market is down. Examples include put options and inverse ETFs, which are designed to mirror the opposite performance of major indexes. While these assets can be beneficial during periods of economic stress, they tend to perform poorly when the market is doing well and should be used with caution.
Stay Focused on Your Long-Term Goals
Short-term market fluctuations are common, but over time, a well-diversified portfolio can smooth out these ups and downs with stabilized growth. Historically, markets have shown resilience, with diversified portfolios often recovering from downturns and generating positive returns over extended periods.
By avoiding the urge to react to day-to-day market swings, you keep your portfolio aligned with your ultimate financial goals rather than being influenced by temporary market movements. Reacting impulsively to short-term volatility can lead to costly decisions like selling at a low point or missing out on the subsequent recovery. Check your portfolio only as often as you need to, and resist the temptation to impulsively sell.
Common Mistakes to Avoid During Volatile Markets
Volatile markets can be notoriously difficult to manage, especially if you check your portfolio regularly. Avoid these three common mistakes to see better returns over time.
1. Panic Selling
During uncertain market periods, investors often panic and sell off investments at a loss, believing that prices will continue to plummet indefinitely. Historically, markets have recovered from downturns in every major sector. Panic selling locks in your losses, preventing you from benefiting from market recovery. Stay calm, focus on long-term goals, and avoid making investment decisions based on fear, especially during periods of high volatility.
2. Trying to Time the Market
Investors who “time the market” try to strategically make investments when the market is low with the intent to sell them off when prices rise. While this strategy sounds like a good idea, most investors are not able to accurately predict price movements, leading to missed opportunities and compounded losses. Dollar-cost averaging, which involves consistent purchases over time, usually results in better long-term results.
3. Overreacting to News
Reacting to market news or financial headlines can lead to impulsive decisions, causing you to enter or exit positions without considering the full consequences of doing so. For example, if you read negative headlines about a stock and decide to sell, you might need to pay higher taxes if you haven’t held the asset for one year or more.
Staying Steady in a Volatile Market
While market volatility is an inherent part of investing, it doesn’t have to derail your financial goals. By understanding your risk tolerance, diversifying your portfolio, strategically allocating assets, and staying focused on long-term objectives, you can mitigate the impact of volatility and make more informed investment decisions. Avoid common pitfalls and maintain a steady, disciplined approach to your portfolio. With careful planning and a focus on your financial goals, you can confidently navigate periods of market fluctuation and position yourself for long-term success.
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Trump Tax Reforms: 7 Stocks That Could Benefit in 2025
The returning Trump administration will seek more tax reforms pending approval from Congress. They plan on making the 2017 Trump tax cuts permanent and even lower some rates. The corporate tax rate will be dropped to 15% while the child tax credit is hiked. Many of the green-energy tax breaks from the 2022 Inflation Reduction Act are expected to be terminated. Jeffries believes smaller cap companies in the financial, industrial, consumer, and basic materials sectors are set to benefit the most. Here are seven companies that investors may want to watch that will gain from tax reports.
Wingstop: A 7% EPS Bump Is No Chicken Scratch
Fast-casual restaurant operator Wingstop Inc. (NASDAQ: WING) is a winner.
The company posted a third-quarter 2024 domestic comparable sales growth of 20.9% YoY.
According to Jeffries analyst Andy Barish, a 500 bps reduction in its tax rate could translate into an incremental 6% to 7% EPS bump. Wingstop offers domestic and international franchises, but the domestic operations would benefit the most.
Post Holdings: It Pays to Sell in the United States
Cereal and packaged foods producer Post Holdings Inc. (NYSE: POST) generates between 80% to 90% of its revenues domestically.
According to Jeffries analyst Rob Dickerson, tax policy changes could impact Post’s rate by 400 bps to 450 bps.
This could result in an increase in free cash flow (FCF) to around 4% over the following three years compared to current consensus estimates.
Valvoline: Adjusted Earnings-Per-Share Could Spike 6%
Automobile service center operator and franchisor Valvoline Inc. (NYSE: VVV) would find some relief being in one of the highest tax rates at 25.5% in 2024.
It would be a top beneficiary as a result of lower corporate taxes.
According to Jeffries analyst Bret Jordan, a 500 bps corporate tax reduction would lower its tax rate to 20%, which would go right into its bottom line, boosting its adjusted EPS by 6%.
BJ’s: Warehouse Club Operator Could See Additional 7% Full-Year EPS Bump
Warehouse club operation BJ’s Wholesale Club Holdings Inc. (NYSE: BJ) is poised to see full-year 2025 EPS estimates jump from $4.30 to $4.60 on a 500 bps tax cut.
According to Jeffries discount retailer analyst Corey Tarlowe, this would equate to an extra $40 million of net income or 7% added to the bottom line.
This additional income could provide BJ's with more flexibility to invest in growth initiatives or return value to shareholders.
Hilton: An Additional $8 Per Share of Adjusted FCF and EPS Could Materialize
Jeffries gaming, lodging, and leisure analyst David Katz estimates hotel operator Hilton Worldwide Holdings Inc. (NYSE: HLT) will see a nearly $27 million increase for every 100 bps tax rate reduction in its full-year 2025 adjusted FCF.
A 500 BPS tax cut would equate to a $134 million bump in its adjusted 2025 FCF, dropping its corporate tax rate to 25.7%.
The bottom line is that the full-year 2025 EPS upside could materialize into an additional $8 per share.
Best Buy: Net Income Could Face a 6% Bump
Consumer electronics big box retailer Best Buy Inc. (NYSE: BBY) could see its annual tax rate drop from 24% to 19% on a 500 bps corporate tax rate drop.
Based on calendar year 2025 street estimates, Best Buy could see net income and EPS grow by an additional 6%.
This could generate $93 million in cash, which Jeffries hardline analyst Johnathan Matuszewski believes the company will use to buy back more shares and update interior store displays.
BellRing Brands: Income See a 6% to 7% Pump
According to Jeffries beverages, consumer product, and health & wellness analyst Kaumil Gajrawala, healthy snack and protein supplements producer BellRing Brands Inc. (NYSE: BRBR) would deepen near-term reinvestment plans for marketing and innovation with a 500 bps tax rate cut.
The tax rate cut from 24.5% to 19.5% could pump up near-term EPS by 6% to 7%.
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3 Stocks Near 52-Week Lows: Why They Could Be Smart Buys Today
Every once in a while, the stock market lets investors dive into reasonable discounts in some of the best companies in the economy. These discounts always come as a surprise, considering that these companies aren’t usually found trading near their lows. This is why today’s list of stocks near their 52-week high could come in handy for those looking for a deal.
With Wall Street analysts and the rest of the market finding enough reasons to boost these stocks back to their true valuations, investors now have enough of an opening to keep their attention fixed on these potential recoveries. Names like Target Co. (NYSE: TGT) offer investors double-digit upside in the consumer discretionary sector after the stock traded down on recent earnings.
But the good news doesn’t stop there. Investors can also head into the energy sector through Enphase Energy Inc. (NASDAQ: ENPH) to align their portfolios to potential double-digit rallies ahead. Finally, in the middle of the semiconductor industry drama, there is a better way to navigate the space with a greater margin of safety found in ASML Holding (NASDAQ: ASML) and its discounts from recent highs.
Target Stock’s Upside Potential Forces Bears to Abandon Their Positions
Over the past month, even as Target stock traded down to only 72% of its 52-week high, the company’s short interest has declined by as much as 6.8% to show signs of bearish capitulation, a symptom that might have resulted from the potential upside that lies ahead for the stock.
Just when these short sellers might have gotten excited to see their positions turn a profit, it looks like the broader market trends forced them to cover their positions, especially as bond prices rallied recently to lower yields. Lower yields are always good for consumer trends; Target stock is no exception.
Wall Street analysts would agree, seeing that the current consensus valuation for Target stock has been set at $160 a share. To prove this view right, the stock would need to rally up to 21.3% from where it trades today, but it still wouldn’t be close to its yearly high of $181 a share.
Some institutional buyers, particularly those at State Street, possibly replaced some of these short sellers leaving the stage. As of November 2024, these investors boosted their Target stock holdings by 8.3%, bringing their net position to a high of $5.5 billion or 7.7% ownership in the company.
Enphase Energy Stock: How a New Energy Cycle Could Attract Investors
When investors accept that the lowering bond yields, the ones that will help trends in favor of Target stock, are the same trends that will help push the price of oil higher, then the upside in Enphase Energy stock becomes clear.
There’s a reason Warren Buffett has kept his Occidental Petroleum Co. (NYSE: OXY) position despite selling out of other names recently. It’s because he knows the coming cycle will be good for oil prices. In the same way, solar stocks will likely benefit from the most expensive oil, as contradictory as that may seem.
Higher oil prices will boost fuel costs and electricity costs as well, as the two are tied together on an annualized basis, which means that alternative – and cheaper – sources of energy will become a more attractive proposition. Out of all the alternative energy sources in the market today, solar has the most market adoption and reach.
That is why analysts at J.P. Morgan Chase have kept their “Overweight” ratings on Enphase Energy stock and, as of October 2024, have also kept their $120 per share price targets. Enphase Energy stock would have to rally by as much as 63% from where it trades today to reach these valuations.
Considering the company now trades at 51% of its 52-week high, the risk-to-reward scale favors buyers here, not sellers.
A Better Risk/Reward Profile in ASML Stock
After the Super Micro Computer Inc. (NASDAQ: SMCI) debacle and its threat to Nvidia Co. (NASDAQ: NVDA), some semiconductor stocks traded lower on the market concerns. However, this is where ASML stock and its current level at only 64% of its 52-week high come into play.
Whether the risk implied for the bigger names becomes a reality or not, the truth is that ASML stock is discounted enough that the potential upside far outweighs the potential risks of trading even lower. This is one fact that analysts at J.P. Morgan Chase were also willing to reiterate publicly.
As of October 2024, they kept their “Overweight” ratings on ASML stock and even placed a $1,148 price target on the company despite the recent bearish price action. This would imply that ASML stock has a net rally of 71% in store for those willing to take another look into the company.
Moreover, markets are still willing to pay a premium to access ASML’s financials, as the stock’s 14.9x price-to-book (P/B) ratio would suggest, especially compared to the computer sector’s average 7.1x valuation. Markets typically overpay for a stock they believe will easily outperform peers in the coming quarters.
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