FB stock, GM and Disney lead five consumer stocks on this weekend’s menu of stock to watch. All are near buy points, hitting the gas on growth strategies and demonstrating constructive relative strength line trends — at least recently, for FB stock. These, for the most part, aren’t reopening plays.
Only Disney (DIS) is still recovering from an earnings hit over the past year and is due for a reopening rebound in coming months. For General Motors (GM), Facebook (FB), Target (TGT) and Scotts Miracle-Gro (SMG), reopening isn’t a primary driver and in some cases might be a mixed bag.
Still, consumers are flush after the latest $400-billion round of stimulus checks. Aggregate wages and salaries have already topped their pre-Covid peak, so there’s plenty of cash to go around.
Target stock and Scotts-Miracle Gro broke out into buy zones on Friday. Disney stock and GM are poised for bullish rebounds while Facebook is forging a handle on a long consolidation.
The partial return of normalcy since the Covid lockdown a year ago has already taken a modest toll on Facebook’s user activity. Daily active users in the U.S. and Canada slipped to 195 million in Q4 from 198 million in Q2. But Facebook has become ever more central to businesses trying to connect with consumers. Business advertisers soared to more than 10 million in Q4 from more than 8 million a year earlier.
Facebook earnings growth was solid to strong in 2020, while revenue growth accelerated in the last two quarters. Analysts see solid EPS growth in 2021 and 2022.
Probably the biggest worry for FB stock investors has been that Apple’s spring update for Apple’s iOS 14 will require Facebook and other apps downloaded through the App Store to provide users a prompt, allowing them to opt in or out of tracking their activity across third-party sites.
On the Jan. 27 earnings call, Facebook CFO Dave Wehner warned of “high opt-out rates,” which would impede ad targeting and hurt ad pricing. That triggered a downside reversal for FB stock the next day, and it struggled to gain traction over the next six weeks.
However, CEO Mark Zuckerberg changed the narrative when he shared astounding numbers for Facebook Shops on a March 19 podcast. He said that Facebook’s digital mall that launched 10 months ago already has more than 1 million active shops and 250 million shoppers per month. Bringing “the merchant transaction onto the platform removes the need for off-platform tracking,” Morgan Stanley analyst Brian Nowak wrote.
That news helped reawaken FB stock from a six-month slumber. On Monday, FB stock climbed as high as 299.71, within 2% of its Aug. 26 all-time high. FB stock’s relative strength line, the blue line in the charts provided, broke out of its downtrend to a 2021 peak.
While FB stock came off that level mid-week as tech stocks came under pressure, the damage was superficial. Facebook stock is holding above its 21-day average. With one more session, Monday’s 299.71 high will officially become the top of a handle on a daily chart, offering a 299.81 buy point. On a weekly chart, FB stock already has a handle with the 299.81 entry.
Disney revealed plans for a big expansion of Disneyland on Friday. The California theme park is set to reopen on April 30 at 15%-35% capacity. Disney World in Orlando, Florida, has been open for months.
While Disney theme parks won’t be the major driver of long-term Disney stock performance, they will be a near-term focus, JP Morgan analyst Alexia Quadrani wrote in a March 18 note. She said Disney parks should emerge stronger and with even better margins above 26% thanks to operational and consumer-experience improvements during the pandemic.
Also on Friday, Disney+, its wildly popular streaming service, implemented its first price hike, raising the monthly fee $1 to $7.99. Disney+ has surpassed 100 million in global paid subscribers, CEO Bob Chapek said at the March 9 annual meeting.
Disney stock slipped 0.6% to 185.86 in Friday stock market action. The Dow Jones stock has pulled back 8.5% from its March 8 all-time high and is now perched slightly above its 10-week and 50-day moving averages. DIS stock also has been pulling back to test a prior buy of 183.50.
When leading stocks revisit their 10-week/50-day lines while remaining above the prior buy point, that offers investors an opportunity to add more shares or establish a new position. Disney stock already climbed off its 181.01 low for the week. Ideally you’d want to see more of a bounce before jumping in, such as reclaiming the 21-day line.
Keep a close watch on Disney stock. If it clears its 21-day moving average, now at 190.45, that would lift Disney stock above its downsloping trend line from March 8. That would be actionable.
GM stock is another leading stock whose pullback to its 10-week/50-day line in the past week has created a buying opportunity. After bouncing off its Thursday low, GM stock already nosed back above its 21-day moving average at 56.16, giving investors a green light. GM stock closed off 0.1% to 56.52 on Friday.
Another possible entry point for GM stock is 57.15, 10 cents above GM’s Feb. 8 high. That marked the top of an eight-week consolidation for GM stock before a pseudo-breakout on March 12.
With a global chip shortage already forcing GM to curtail production of cars and midsize pickups, GM’s short-term growth is constrained. However, GM stock is being fueled by accelerated progress toward an autonomous and EV future.
On April 3, during the NCAA Final Four, GM is set to reveal its Hummer SUV — a version of the all-electric supertruck with an enclosed cargo bed — and begin taking reservations. The Hummer EV enters production this fall, promising range of up to 450 miles.
Earlier this month, GM announced plans to produce prototypes of its next-generation lithium-metal battery by 2023 that it says will offer a range of 500-to-600 miles at lower cost.
GM’s first electric delivery vans will come off the assembly line in late 2021, with 500 slated to go to FedEx (FDX). In a Bank of America investor presentation on Monday, Travis Katz, CEO of GM’s Brightdrop logistics startup, elaborated on GM’s relationship with FedEx. He also hinted that GM-FedEx ties are deeper than so far disclosed.
Probably no one was more surprised at Friday’s breakout for Target stock than Wall Street analysts. Target suffered numerous price-target cuts following its March 2 Q4 earnings and broader strategy presentation. A number of analysts cited Target’s guidance of narrower profit margins as it steps up capital spending. Target said it will spend about $4 billion in each of the next few years vs. about $3 billion in 2019.
Target stock dived 6.8% on March 2, undercutting its Jan. 27 low, setting up the double-bottom base.
The average forecast of analysts sees Target sales slipping 2% this year, as restaurants reopen and Target’s wallet share declines. At least some analysts still expect positive sales growth. Target is highlighting numerous growth initiatives. That includes opening up to 40 stores per year vs. 30 in 2020, including small-format stores on college campuses, and accelerating stores remodels with a focus on contactless service and same-day fulfillment. Target also said it’s rolling out adult-beverage pickup at 800 more stores and opening 100 Ulta Beauty (ULTA) in-store shops.
Friday’s breakout of this stay-at-home stock may reflect just how much money is juicing up the economy now.
Scotts Miracle-Gro Stock
Scotts Miracle-Gro stock, a recent featured IBD 50 stock, is another stay-at-home play whose consumer lawn and garden products business will be challenged to top last year’s heights. Yet Scotts’ Hawthorne Gardening unit, which supplies lighting, nutrients and other hydroponic and indoor growing products, keeps growing like a weed.
Scotts has said it expects 20%-30% growth for Hawthorne in the fiscal year through September. On March 1, Scotts bumped up its forecast for consumer lawn and garden product sales from the prior range of -5% to flat into positive territory.
Scotts Miracle-Gro stock’s breakout on Friday from a cup-with-handle base came as New York State lawmakers and Gov. Andrew Cuomo reached a deal to legalize cannabis for adults 21 and up.
SMG stock rose 2.6% to 241.42, clearing a 238.91 buy point, which was 10 cents above the top of the handle on March 16.
Scotts has a 96 IBD Composite Rating. The Composite Rating combines several key fundamental and technical factors into a single score. IBD research shows that all-time stock winners often have a Composite Rating of at least 95 near the start of big runs.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of financial markets and economic policy.
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