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Earlier this month, The Cash Present requested me to affix different inventory market consultants and submit my high inventory thought for this yr. Whereas the markets have been in a sunnier place at the moment, I am sharing my response beneath, as I nonetheless consider this inventory is headed a lot greater from right here.
After all, I am going to must see the broader markets flip constructive earlier than placing cash into my high decide, as latest promoting pressures have me cautious on the near-term prospects of most shares. As you may see on the weekly chart beneath, the S&P 500 is now buying and selling beneath its key 40-week or 200-day shifting common. As well as, the RSI and Stochastics are in damaging territory.
WEEKLY CHART Of S&P 500 INDEX
These similar damaging traits have been in place at first of the 2 most up-to-date bear markets and, till I see value motion just like the January 2019 and April 2020 downtrend reversals (inexperienced arrows), I am going to maintain this inventory on my Watchlist. My MEM Edge Report makes use of a confirmed system that has known as each market backside over the previous 25 years, and it makes use of a each day chart in addition to the weekly chart above.
Curiously, the each day chart of the S&P 500 is exhibiting some doubtlessly constructive indicators as heavyweight shares akin to Microsoft (MSFT) and Apple (AAPL) are rallying on higher than anticipated 4th quarter earnings outcomes in addition to constructive feedback from administration relating to development into this yr.
The present selloff within the markets has been sparked by fears surrounding excessive inflation, which is at present operating at a 40-year excessive. The principle reason behind this inflation has been provide chain points which are pushing the price of supplies a lot greater. Wage pressures are additionally including to the underlying prices of doing enterprise.
In periods of excessive inflation, corporations that improve their dividends probably the most significantly have traditionally outperformed the broader markets. Of be aware, many high-quality corporations routinely elevate their dividend payouts to assist hedge in opposition to inflation, which is one other bonus.
Many of those corporations are a part of the Dividend Aristocrat group, that are 65 high-quality corporations which have elevated their dividend payouts for no less than 25 years. One such firm is IBM (IBM), which gives a beneficiant 5.3% yield in addition to superior development prospects. The corporate’s dividend is powered by its capability to generate free money move and, over the previous decade, IBM has produced over $10 billion in free money move.
Beginning in 2022, IBM expects excessive single-digit development in free money move, persevering with by 2024 for a cumulative whole of about $35 billion. This development comes from an estimated improve in income of about $3 billion every year by 2024.
DAILY CHART OF IBM
Whereas many individuals think about the 110-year previous firm to be old-fashioned, IBM has pivoted to a deal with the cloud and synthetic intelligence. The transfer into these development areas, in addition to the corporate’s spinoff of their knowledge administration facilities into Kyndryl Holdings (KD), has IBM poised to be one of many large turnaround tales for 2022, with their cloud and AI divisions including $4.4 billion to Q32021’s income development. On Tuesday, IBM posted earnings and gross sales that have been above estimates, with administration guiding estimates greater for this yr because of sturdy development prospects. The inventory rallied nearly 6% on an in any other case tough day for the markets.
Whereas I am constructive on IBM, given the at present excessive inflationary interval in addition to the corporate’s sturdy development outlook, as soon as the markets flip bullish, I will be turning my focus to oversold Software program shares, in addition to different Development shares.
For individuals who’d prefer to be alerted to when the markets flip constructive, in addition to my high picks in oversold Development shares, use this link here for a 4-week trial at a nominal price. Final yr, I proposed over 120 inventory picks in varied sectors, and my win charge was 75% with the losers having a median decline of 4%. You can use this link here for immediate access to my twice weekly MEM Edge Report.
On this week’s edition of StockCharts TV’s The MEM Edge, I assessment key earnings studies and the way they’re driving value motion. I additionally share a view of promising strikes in Tech and one space you must keep away from.
I additionally appeared on the January 2022 edition of StockCharts TV’s The Pitch, alongside Joe Rabil and Jay Woods.
Warmly,
Mary Ellen McGonagle, MEM Investment Research
Mary Ellen McGonagle is an expert investing guide and the president of MEM Funding Analysis. After eight years of engaged on Wall Avenue, Ms. McGonagle left to grow to be a talented inventory analyst, working with William O’Neill in figuring out wholesome shares with potential to take off. She has labored with purchasers that span the globe, together with large names like Constancy Asset Administration, Morgan Stanley, Merrill Lynch and Oppenheimer.
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