General Engines (GM) and GlobalFoundries (SFP), which hit the buy range last week as a surprisingly weak CPI inflation report sent market interest rates tumbling, topping this weekend’s watchlist of five stocks close to buy points. Improving hopes of a soft landing for the economy and a falling 10-year Treasury yield is good news for cyclical, interest-rate-sensitive stocks like GM stocks and equity valuations technologies like GFS.
A slightly more optimistic economic outlook and an increase in valuation thanks to the falling 10-year Treasury yield hit the accelerator on a rotation into cyclical and growth stocks. This trend also has the building products giant FirstSource Builders (BLDR) and solar stock leader Enphase Energy (ENPH) near the shopping range.
A defensive game yet “growing” Health Acadia (CCSA), which operates behavioral treatment centers, largely resisted that rotation this week, earning fifth place on this weekend’s watch list. All stocks on the list recently reported earnings, removing a risk factor from the equation.
Track money to GM, GFS, ENPH, ACHC
There is also another big trend driving four of the actions on the list: increased public funding. Bernstein analyst Toni Sacconaghi said incentives to produce U.S.-made electric vehicle cells and battery packs could amount to $3,000 to $4,000 per vehicle for GM, as well as You’re here (TSLA) and Ford (F). This does not include the impact of the $7,500 tax credits for the purchase of electric vehicles, which may not apply for some time.
Enphase is another winner of the Inflation Reduction Act incentives. The company said on its Oct. 25 earnings call that it plans to open four to six U.S. manufacturing lines by the second half of 2023. The law, which extended a tax credit from 30% for residential solar investments for another decade, also included a home microinverter production tax credit of 11 cents per watt AC.
In September, BofA Securities analyst Vivek Arya called GlobalFoundries “a top pick on emerging themes of U.S. chip relocation, supply assurance and potential ‘hedging.’ against rising US-China tensions. GlobalFoundries stands to be a big beneficiary of the CHIPS Act to boost domestic chip manufacturing. The company recently announced $30 million in federal funding to advance development and production at its Vermont plant.
Acadia Healthcare’s revenue per patient day increased 6.9% in the third quarter, highlighting “increased financial support for mental health from payers (governmental and commercial),” the company wrote. Jefferies analyst Brian Tanquilut in an Oct. 31 note. “With opioid settlement funds beginning to flow to various state entities and demand for acute mental health services remaining high, we expect the high rate growth to continue over the coming quarters.”
GM stock rose 3.5% to 41.12 on Friday, a day after Thursday’s 4.4% gain lifted the automaker significantly above its 200-day average for the first time since January.
GM is hosting an investor conference on Nov. 17 to discuss key performance metrics for its electric vehicle ramp over the next few years.
While lower interest rates are positive for automotive demand, a soft landing is far from guaranteed. Some analysts worry that the drop in used car prices, which helped lower inflation in October, could be a precursor to a drop in new vehicle prices.
MICI Swing Trader added GM shares to its portfolio on Thursday.
GM’s stock was IBD stock of the day Thursday.
GFS stock rose 3.3% to 64.77 on Friday. This lifted the GFS stock out of range from an early entry point around 61.24, just above its October 25 high.
Now, GFS stock is approaching a new entry point at 66.06, just off its August 12 high.
Ideally, GlobalFoundries stock would pause, letting the 50-day line regain some ground.
GFS stock’s relative strength line, the blue line that tracks its advance against the S&P 500, is just below its March all-time high for the chipmaker, which was made public in September 2021.
GFS was IBD stock of the day tuesday.
The fall in the 10-year Treasury yield took the 30-year fixed rate mortgage to below 7%. It may take significant further easing to put a floor under the housing market. But Builders FirstSource continued to post strong EPS growth of 53% in the third quarter, even as revenue growth slowed to 5% amid deflation in commodity prices.
This reflects an almost 20% increase in sales of its higher-margin value-added products. One example is its pre-cut Ready-Frame set to speed up home construction.
BLDR stock rose 1.2% to 65.88, after jumping 14.1% on Thursday. The previous day’s move lifted BLDR stock above its 200-day line for the first time since August. The move above its 200-day prior resistance at 65.18 offers an early entry point.
Arguably, Builders FirstSource is at its lowest since the beginning of August.
Despite the rally in tech stocks that caught fire at the end of the week, ENPH stock fell 5.6% to 292.01 on Friday, gaining just 3.4% on the week.
On Tuesday, B. Riley analyst Christopher Souther touted SolarEdge, while noting its present value relative to ENPH stock.
Enphase stock briefly hit a buy point of 299.58 cups with a handle on Friday, before closing lower.
The ENPH stock is part of the IBD Ranking elite stock portfolio.
Acadia Healthcare’s stock slipped 4.5% on Friday, just below its 50-day line. But ACHC stock still managed to close 2.8% higher on the week amid an investor presentation and announcement of an Atlanta-area acquisition.
ACHC stock has an official buy point of 86.85. Clearing of Thursday’s high at 85.16 may offer early entry.
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