Market Re-cap
The main US stock market indices inched up higher in February amid a strong earnings season that offset ongoing political turmoil and trade concerns. The S&P 500 closed the month up 2.88%, while the Dow Jones Industrial Average advanced by 3.40%. The NASDAQ Composite gained 3.70%.
February saw the bulk of the fourth-quarter earnings season conclude. According to FactSet, by March 1, 96% of companies in the S&P 500 reported their results for the quarter. Among those companies, 69% posted better than expected profits, while 61% registered a revenue surprise.
FactSet also noted that the blended earnings growth rate for companies in the S&P 500 amounted to 13.1%, which marks the fifth straight quarter of double-digit growth.
It’s also worth noting that for the current quarter, 73 companies in the S&P 500 provided a negative EPS guidance and only 26 companies expect bottom-line growth.
While the earnings season dominated investors’ attention last month, there were geopolitical concerns on traders’ minds as well. The ongoing trade dispute between the United States and China continued to dominate airtime. Both countries are deadlocked in negotiations with no clear deal in sight. In the meantime, the US trade deficit is ballooning to record levels.
Investors were also concerned about a potential government shutdown which was averted with a last-minute spending bill.
Across the pond in Europe, more drama was unfolding. In mid-February UK Prime-Minister Theresa May saw Parliament vote overwhelmingly against her Brexit strategy, putting the UK at risk of leaving the EU without any deal in place. This could have catastrophic consequences for the UK economy. While the UK is scheduled to leave the EU on March 29, there is a possibility of either postponing the date or holding a second Brexit referendum.
TrackStar Featured Insights
TrackStar, InvestingChannel’s official newsletter capturing and analyzing the trends of Financial Advisors, looked at the most searched tickers among Financial Advisors in February. Advisors focused on stocks that were in the spotlight amid their financial reports, such as Canadian National Railway (NYSE:CNI) and NASB Financial, Inc. (OTCMKTS: NASB), which ranked on the first and fifth spots in TrackStar’s list.
Other developments also put a number of companies in Financial Advisors’ sight. For example, Constellation Brands, Inc. (NYSE:STZ) was the third most-searched ticker as the company received (mostly) positive updates from analysts at Wells Fargo, Morgan Stanley, and RBC. On February 20, Constellation executives presented at the Consumer Analyst Group of New York (CAGNY) Conference, where they talked about their performance and their recent investment in Canadian cannabis company Canopy Growth Corp (NYSE:CGC).
At CAGNY, Constellation Brands mentioned that their growth is driven by premium alcohol products such as high-end beer. Over the past three years, high-end beer saw a volume CAGR of 5%, topped only by craft beer, which realized a CAGR of 9%.
For its wine and spirits segments, Constellation is also focusing on top-line growth by shifting focus to high-end brands, optimizing and building its brand portfolio, and refreshing core brands.
Constellation didn’t provide specific guidance, but said it expects net sales growth in the mid-to-high single digits over the next 3-5 years and a diluted EPS CAGR of around 10%.
Aside from Constellation’s core businesses, investors have been watching the company over the last couple of months through the prism of its major investment in Canopy Growth. Last August, Constellation upped its stake in Canopy by $4 billion and currently holds 38% of the company.
Canopy is the largest producer of marijuana in the world, with a global presence through facilities and export deals with a number of countries, including Germany, Denmark, Poland, Colombia, Czech Republic, and Australia. In the US, Canopy has recently received a license to cultivate hemp in the state of New York and plans a $500 million investment in the US hemp industry.
Following the CAGNY conference, RBC analysts reiterated their ‘Outperform’ rating on Constellation’s stock saying that the company doesn’t need to focus on its beer margins for long-term value creation but instead should reinvest cash flow to maintain its revenue growth momentum.