Chicago, IL – May 6, 2022 – Zacks Equity Research shares CF Industries Holdings CF as the Bull of the Day and Amazon AMZN as the Bear of the Day. In addition, Zacks Equity Research provides analysis on AMD AMD, Apple AAPL and NVIDIA NVDA.
Here is a synopsis of all five stocks:
CF Industries Holdings, a Zacks Rank #1 (Strong Buy) stock, has benefitted immensely in the current inflationary environment from higher prices for agricultural inputs. The stock hit an all-time high in April before retreating slightly as the market continues its move lower. CF sports the highest-possible rating of 'A' in our Growth Style Score category, indicating high-quality growth prospects and sound financial strength. CF Industries is vastly outperforming the market this year and looks to build on the recent momentum.
CF is a component of the Zacks Fertilizers industry, which ranks in the top 2% out of about 250 industry groups. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months. The Fertilizers industry has risen 44.31% year-to-date while the market has been in correction mode.
Quantitative research studies have shown that approximately half of a stock's future price appreciation can be attributed to its industry grouping. By targeting stocks located within leading industries, we can dramatically improve our odds of success.
CF Industries is a global leader in transforming natural gas into nitrogen products. The company manufactures and sells hydrogen and nitrogen products for fertilizer, energy, emissions abatement, and other industrial activities. CF Industries is one of the largest manufacturers and distributors of nitrogen fertilizer in the world. Its principal products include anhydrous ammonia, granular urea, and ammonium nitrate. CF Industries was founded in 1946 and is headquartered in Deerfield, IL.
CF has either met or exceeded earnings estimates in four out of the past six quarters. The fertilizer manufacturer most recently reported Q1 EPS earlier this week of $4.21, matching the consensus estimate. The figure compares favorably to the $0.70/share that the company reported a year ago.
CF posted Q1 revenues of $2.87 billion, surpassing the consensus estimate by 10.44%. Revenues nearly tripled from the $1.05 billion during the same quarter in the prior year.
The company has been on the receiving end of several positive earnings estimate revisions as of late. For the current quarter, analysts have revised EPS estimates upward by 19.47% in the past 60 days. The Q2 Zacks Consensus Estimate now stands at $5.46, reflecting a 378.95% growth rate relative to Q2 of last year.
It's a similar story when we zoom out and view full-year figures. Analysts have increased their 2022 EPS estimates by 22.72% in the past 60 days. The Zacks Consensus Estimate is now $16.58, translating to potential growth of 291.04% versus last year. Sales are anticipated to rise by 63.65% to $10.7 billion. Clearly, the sales and earnings trends point to continued growth for CF.
CF Industries has advanced over 400% from the March 2020 bottom and is showing signs of relative strength. The stock hit an all-time high last month and is up 42% this year while the S&P 500 is down over 13%. New highs are a sign of strength and indicate that institutional buying remains solid.
This is the kind of stock we want to include in our portfolio – one with both strong fundamentals as well as technicals. The stock has trended very well over the last 12 months.
While CF has pulled back slightly in recent weeks along with the market, the stock is looking to find support at a familiar trendline and new highs may be just around the corner. Cautious investors may feel hesitant about investing in a stock that has come this far, but the fact is this elite company is still outperforming.
The company is well-positioned to profit from higher global demand in major markets for nitrogen fertilizers. Rising crop commodity prices also contributed to larger demand. High levels of corn-planted acres as well as more industrial and economic activity bodes well for CF Industries, particularly in emerging markets such as Brazil and India.
CF paid a dividend totaling $260 million last year and completed $1 billion in share repurchases. The current dividend is $1.20, translating to a yield of 1.18%. In November of last year, management approved a new $1.5 billion buyback program.
Recent positive earnings estimate revisions should serve to create a 'floor' for any sudden or unexpected downside moves. The Zacks Rank #1 (Strong Buy) stock is a compelling investment with powerful price momentum.
A strong technical trend along with relative undervaluation certainly justify adding shares to the mix. Solid institutional buying and a high-performing industry group should continue to provide a tailwind for the stock price. If you're looking for a way to diversify your portfolio, make sure to put CF on your shortlist.
Amazon, a Zacks Rank #5 (Strong Sell) stock, is engaged in the retail sale of consumer products and subscriptions globally. The company sells merchandise and content purchased for resale from third-party sellers through online and physical stores. AMZN also manufactures and sells devices including Kindle, Fire tablets, Rings, Echo, and other electronics.
Amazon also offers Amazon Prime, a membership program that provides free shipping of various items and access to streaming of movies and other content. In addition, AMZN operates Amazon Web Services (AWS), a subsidiary that provides on-demand cloud computing platforms to individuals, companies, and governments. Amazon was incorporated in 1994 and is based in Seattle, WA.
AMZN is part of the Zacks Internet – Commerce industry group, which currently ranks in the bottom 25% out of approximately 250 industries. Because this industry is ranked in the bottom half of all Zacks Ranked Industries, we expect it to underperform the market over the next 3 to 6 months.
Candidates in the bottom half of industry groups can often represent solid potential short candidates. While individual stocks have the ability to outperform even when included in poor-performing industries, their industry association serves as a headwind for any potential rallies. AMZN stock keeps having trouble as it continues to make a series of lower lows.
Amazon has missed earnings estimates in two of the past three quarters. The online retailer most recently reported Q1 EPS last week of $4.24, missing the $8.73 consensus estimate by -51.43%. Revenues for the quarter slightly missed estimates, coming in at $116.44 billion.
Consistently falling short of earnings estimates (especially by a large magnitude) is a recipe for underperformance, and AMZN is no exception. The stock will have a tough time getting back to its outperforming ways if AMZN fails to impress in the quarters ahead.
Analysts have decreased EPS estimates for AMZN across the board. The Q2 estimate has declined -60.71% in the past 60 days to $4.64, which would represent a -69.31% earnings regression versus the same quarter last year.
For the full year, analysts have slashed 2022 EPS estimates by -77.6% to $10.85, translating to negative growth of -83.26% versus last year. Falling earnings estimates are always a concern, but a decline of this scale is a big red flag. If the company continues its recent streak of earnings misses, more pain will likely be ahead for the stock. Negative growth year-over-year is the type of trend that bears like to see.
Recent earnings misses and an unpredictable equity market don't exactly favor bullish AMZN investors. Our Zacks Style Scores depict a weakening outlook for this stock, as AMZN is rated a 'C' in our Growth category and a 'D' for our overall VGM category. A deteriorating fundamental and technical backdrop show that this stock is fighting an uphill battle.
Falling future earnings estimates are a big red flag and need to be respected. These will likely serve as a ceiling to any potential rallies, nurturing the stock's downtrend. The fact that AMZN is part of one of the worst-performing industry groups simply adds another headwind to a long list of concerns. Bulls will want to steer clear of an overvalued AMZN until the situation shows signs of a turnaround.
Bearish sentiment brought a surprise takedown across the board today, and although they closed higher than their session lows, the results are naught but ugly: the Dow sold off -1063 points or -3.12%, the S&P 500 was -153 points or -3.56%, the Nasdaq was hit the hardest — down more than -5% for a time — down -647 points or -4.99%, and the small-cap Russell 2000 -84 points or -4.31%. Yesterday's positive boost was completely wiped out, and the losses added to the overall bearishness we've seen over the past month.
This is worth keeping in mind after a trading day like today: many of the companies ransacked by negativity in Thursday's market are essential cogs in the U.S. — and global — economic wheel, and as such won't be going anywhere, despite how their shares prices may have fallen today. Are there large problems in the world? Of course — more than usual, in fact. But these essential companies' stocks will surge back at some point based on demand and progress; there is no alternative.
And no one was spared. This was a mass liquidation across asset classes — a clear assertion of a "risk off" trading environment. Perhaps this was a short-term move to crush all the opportunists looking to further capitalize off the Fed's strong messaging yesterday for market support through the summer. It also might be a late-cycle move for bear-market purists to make some near-term money ahead of a longer build through the rest of the year. If it was — and if there's nothing like this in the days, weeks, and months ahead — then it's likely a very successful endeavor.
Essentially, then, what the market has given investors today is something of a gift, especially to those interested in buying Nasdaq names whose growth trajectories still look historically strong: NVIDIA fell -7.3% and is down -37.4% year to date, AMD is even slightly worse year to date and -5.6% today, the same as Apple — they are down year to date -37.5% and -13.9%, respectively.
These are all strong names in their selective fields, and these price points offer strong upward expectations considering where company guidance was on their recent earnings report calls. None of this is affected by a strong-arm move by bond traders with a negative bent on current market valuations. It also provides another cautionary aspect to those who would care to understand the market based on one day's worth of trading. Not even the greatest investors of all time can do that.
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