Stubborn inflation, rising interest rates, and consequent market volatility have kept many investors on edge. Inflation shows no signs of slowing, despite the Fed’s aggressive monetary policy tightening.
The consumer price index increased 0.4% sequentially in September, beating the Dow Jones estimate. The headline inflation was up 8.2% on a 12-month basis, hovering near the highest levels in decades.
The surging inflation and hot employment data for September strengthen the case for the Fed announcing a fourth 75-basis-point interest rate hike in next month’s meeting. Given these circumstances, the Conference Board sees a 96% chance of a recession in the United States over the coming 12 months, which might begin before the end of 2022. Moreover, the board projects 2022 real GDP to grow 1.5% year-over-year and 2023 growth to zero percent.
Since the economic headwinds are expected to keep the stock market under pressure, overly traded stock Pfizer Inc. (PFE) and Snap Inc. (SNAP) could be best avoided now, with their intermediate and long-term trends being down.
Pfizer Inc. (PFE)
Popular drugmaker PFE discovers, develops, manufactures, and distributes biopharmaceutical products worldwide. The pandemic made PFE one of the world’s most watched stocks, thanks to its COVID-19 drugs and vaccines. The stock has a market capitalization of $240.55 billion.
Although the company has recently announced some promising deals, acquisitions, and FDA approvals, the stock has declined 27.4% year-to-date, underperforming the S&P 500’s 23% decline. The stock has been underperforming the broader market, with investors pricing in the expected sales decline that the company might experience due to an anticipated slowdown in Covid vaccinations in the near term.
For the fiscal second quarter that ended June 30, 2022, PFE’s revenues increased 46.8% year-over-year to $27.74 billion. However, the company’s revenues largely leaned on sales of its Covid-19 vaccine Comirnaty and its antiviral treatment Paxlovid. The Covid-19 vaccine brought in $8.80 billion in revenue in the second quarter, while sales of Paxlovid totaled $8.10 billion.
Adjusted net income attributable to PFE common shareholders rose 93.5% from the year-ago value to $11.66 billion, while adjusted EPS grew 92.5% year-over-year to $2.04.
Wall Street analysts expect PFE’s revenues to decline in the about-to-be-reported quarter, which ended September 2022. The consensus revenue estimate of $21.33 billion for the fiscal third quarter indicates an 11.5% year-over-year decline.
Its EPS is expected to come in at $1.43, indicating a 7% increase from the prior-year quarter. However, revenue and EPS are expected to decrease 22.3% and 20.2% year-over-year for the next year, respectively.
The stock is currently trading at a discount to its peers. In terms of its forward P/E, PFE is trading at 7.57x, 65.6% lower than the industry average of 21.98x. Its forward Price/Sales multiple of 2.41 is 42.2% lower than the industry average of 4.16.
PFE is trading below its 50-day and 200-day moving averages of $46.08 and $50.17, respectively, indicating a bearish sentiment. It closed the last trading session at $42.86.
According to MarketClub’s Trade Triangles, the long-term trend for PFE has been DOWN since August 29, 2022, and its intermediate-term trend has been DOWN since Jul 21, 2022.
The Trade Triangles are our proprietary indicators, comprised of weighted factors that include (but are not necessarily limited to) price change, percentage change, moving averages, and new highs/lows. The Trade Triangles point in the direction of short-term, intermediate, and long-term trends, looking for periods of alignment and, therefore, intense swings in price.
In terms of the Chart Analysis Score, another MarketClub proprietary tool, PFE scored -55 on a scale from -100 (strong downtrend) to +100 (strong uptrend), indicating that the stock is moving in a sideways pattern and is unable to gain momentum in either direction. So, until a more robust trend is identified, it could be wise to avoid the stock.
The Chart Analysis Score measures trend strength and direction based on five different timing thresholds. This tool considers intraday price action, new daily, weekly, and monthly highs and lows, and moving averages.
Click here to see the latest Score and Signals for PFE.
Snap Inc. (SNAP)
SNAP is a camera and social media company operating worldwide. The company’s popular offering is Snapchat, a camera application with various functionalities, such as Camera, Communication, Snap Map, Stories, and Spotlight, enabling people to communicate visually through short videos and images.
The stock has declined 87% over the past year and 78.8% year-to-date to close the last session at $9.99. Bearish sentiments around the stock can be attributed to the challenging economic conditions, slowing demand for its online ad platform, Apple Inc.’s (AAPL) privacy-related changes, and growing competition from emerging social media companies.
SNAP’s daily active users grew 18% year-over-year to 347 million in the fiscal second quarter that ended June 2022. However, its average revenue per user declined by 4% to $3.20.
The company’s revenue increased 13.1% year-over-year to $1.11 billion. However, its net loss increased 178.3% year-over-year to $422.07 million, while its non-GAAP loss per share came in at $0.02, compared to an EPS of $0.10 in the prior-year period.
While analysts expect its revenue to increase 5.3% year-over-year to $1.12 billion in the about-to-be-reported quarter, ended September 2022, its EPS is expected to remain negative. The Street expects its EPS to decline 85.4% year-over-year in the fiscal year ending December 2022.
The stock looks overvalued at its current price level. Its forward non-GAAP P/E of 137x is 931% higher than the industry average of 13.29x. Regarding its forward Price/Sales, SNAP is currently trading at 3.52x, 215% higher than the industry average of 1.12x.
SNAP is currently trading below its 50-day moving average of $11.03 and 200-day moving average of $23.01.
SNAP’s long-term trend has been DOWN since October 22, 2021, while the intermediate-term trend has been DOWN since September 26, 2022, according to the Trade Triangles.
In terms of the Chart Analysis Score, SNAP scored -55. This score indicates that SNAP is moving in a sideways pattern and is unable to gain momentum in either direction. Until a more substantial trend is identified, the stock could be avoided.
Click here to see the latest Score and Signals for SNAP.
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