Weekly Market Review: Ending the Month on a High Note

The broader U.S. market averages rallied last week, even after the Federal Reserve increased interest rates. The S&P 500 gained more than 4%, led by the Energy sector, closing its best month since November 2020.

The FOMC again raised interest rates by 75 basis-points on Wednesday. The Fed has been boosting rates to combat rising inflationary pressures, and Friday the PCE price index showed further growth.

In other economic news, the preliminary second-quarter U.S. GDP reading on Wednesday showed a 0.9% decline. This marked a second straight quarterly decrease, which has historically signaled a recession.

Elsewhere, it was reported that consumer confidence declined, but durable goods orders increased.

The Week Ahead

The pace of earnings reports will remain high next week, with 153 companies in the S&P 500 scheduled to post quarterly results. The following names headline the reporting calendar:

Aug. 2: Advanced Micro Devices (AMD), Caterpillar (CAT) and Starbucks (SBUX)

Aug. 3: CVS Health (CVS)

Aug. 4: Amgen (AMGN) and Eli Lilly (LLY)

Aggregate S&P 500 profit is projected to grow just 7.7% in the second quarter, or actually show a 2.6% decline, excluding the Energy sector. Financial names are expected to post the largest earnings drop in the period.

As the calendar turns to August, the Institute for Supply Management will post its July manufacturing data on Monday, followed by a reading for the services sector Wednesday.

Friday brings the July employment report, where economists are calling for the addition of 250,000 non-farm payrolls and for the headline unemployment rate to remain at 3.6%.

Given a slowing growth outlook and the prospect of higher interest rates, it could become hard to come by investment gains in 2022. As a result, deciding what and when to buy can be challenging for any investor.

However, the fact remains that investments with upside potential and other positive signals are out there if you dig a little deeper.

One such Technology name is worth a closer look and is our Stock of the Week.

Stock of the Week: Semtech (SMTC)

The company makes semiconductors for a wide variety of electronic products, including those within the Internet of Things (IoT) ecosystem.

The stock gained 7% last week and is showing signs that it has the potential to continue this relative outperformance into the second half of 2022.

Here’s why:

This week, Congress passed a $50 billion bill devised to help U.S.-based chipmakers. The semiconductor industry has been plagued with supply-chain issues throughout the coronavirus pandemic.

Even before that relief may materialize, Semtech has strong operating momentum, as evidenced by the better-than-expected quarterly results that management reported last month.

The company earned $0.80 a share in the April quarter, as revenue increased 18% from a year ago, to $202.1 million. Semtech expanded margins in the period and also used its solid cash flow to repurchase $50 million worth of stock.

Shares are currently valued at 17.6x expected earnings over the next four quarters. This represents a discount to the broader market, as well as the 18.3% projected profit growth this year.

Wall Street agrees that the company has value. The average price target of nine active analysts tracked by TipRanks is $79.11, which reflects 26.9% upside potential.

In the meantime, Semtech carries an “Outperform” Smart Score of 9/10 on TipRanks. This data-driven stock score is based on 8 key market factors.

On top of the positive aspects mentioned already, the Smart Score indicates that shares have seen insider buying, in addition to improving sentiment from hedge funds, financial bloggers and individual investors.

FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio, a weekly newsletter that blends big data, and market insights.