Improbably, U.S. stocks have returned to new all-time highs. Coronavirus fears have faded, and as a result the S&P 500 has rallied over 3% in the last three sessions.
Put another way, it looks like investor attention has returned to the market’s underlying fundamentals. And as we’ve noted in recent editions of Big Stock Charts, those fundamentals remain strong. Unemployment is low, consumer confidence is high, and interest rates are favorable.
Meanwhile, coronavirus concerns have obscured what has been a strong earnings season, with impressive reports from market leaders Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT). With earnings season not quite over yet, more such reports could boost sentiment in the coming weeks.
In that vein, Thursday’s big stock charts focus on three companies with earnings reports next week and interesting technical setups ahead of those releases. The reports themselves are important enough to suggest the potential for fireworks. The charts give off the same sense.
Under Armour (UA) (UAA)
Under Armour (NYSE:UA,NYSE:UAA) reports fourth quarter earnings on Tuesday. As the first of Thursday’s big stock charts shows, Under Armour stock seems to be at a potential inflection point. Fundamentally, that appears to be the case as well:
- Technically, UA and UAA stock are waiting for direction. Year-to-date trading has created a wedge pattern, which usually suggests an accelerated move in the direction the stock exits. Of course, shares haven’t exited yet. An ascending triangle pattern did suggest the stock would make another run at resistance around $22. But that pattern is starting to break down.
- The trading makes some sense less than a week ahead of the company’s earnings report. The report not only will contain numbers for the key holiday season, but Under Armour will release guidance for 2020 as well. With accounting issues hanging over the company, Under Armour desperately needs to deliver good news looking both backwards and forwards.
- The options market sees a quick end to the sideways trading, pricing in a roughly 13% move in UAA stock by next Friday. With shares still valued at over 40x 2020 consensus earnings per share estimates, that pricing hardly is a surprise. A big year can re-inspire investor confidence, and send UA and UAA flying through resistance. Anything less, however, and it could be a long way down.
Martin Marietta Materials (MLM)
Building materials supplier Martin Marietta Materials (NYSE:MLM) is one of those large-cap stocks that quietly posted a truly impressive performance in this bull market. Shares have doubled from early 2016 lows. They’ve tripled since 2013.
But like a number of those names, the rally in the past has led to valuation concerns in the present. MLM stock has struggled to consistently clear current levels, but the second of our big stock charts suggests it might be ready to do so:
- MLM has posted a nice rally in recent sessions leading up to its earnings report on Tuesday morning. The breakout off a consolidating base still could have more upside, and sets up the potential for a bullish cup-and-handle pattern. The new uptrend established suggests a path toward at least $285 — which would be a new high.
- The news fundamentally is a bit more concerning, as MLM stock is not cheap. Shares are valued at 23x forward earnings. But with Wall Street looking for 15%-plus EPS growth in 2020, the multiple isn’t outrageous. And if Martin Marietta can provide an upside outlook for 2020, both forward estimates and the forward multiple both can rise, leading to a big spike higher.
- There’s one more factor to consider: Martin Marietta, unsurprisingly, is a cyclical company. And with names like Home Depot (NYSE:HD), I’ve expressed the worry that investors are being too sanguine about macroeconomic risk. The reaction to MLM earnings could show if that’s still the case. But there’s little reason, at the moment, to see investor optimism changing all that much.
STERIS plc (STE)
Like MLM, medical products manufacturer STERIS plc (NYSE:STE) has gained nicely of late, more than doubling in the last three years. And like MLM, the third of Thursday’s big stock charts suggests STE can break through long-held resistance with a solid earnings report:
- STE stock has a textbook ascending triangle pattern, which leans bullish. The stock has moved above rising near-term averages, which suggests momentum is building as well. A solid report on Monday afternoon, when STERIS releases fourth quarter earnings, could be the catalyst for new highs.
- Of course, STE stock isn’t cheap, either, at 25x current 2020 consensus EPS estimates. But the case here is different than for MLM. STERIS growth isn’t nearly as impressive, with analysts looking for a roughly 10% profit increase this year. But a more defensive business model limits the company’s exposure to a macro downturn — and could protect STE stock if equity markets get rattled.
- And so the reaction to earnings in STE stock could be interesting. In the context of this market, valuation doesn’t seem unreasonable: investors are paying up for the combination of quality and safety. One key question for U.S. stocks in 2020, however, is how much more those investors are willing to pay.
As of this writing, Vince Martin has no positions in any securities mentioned.