What’s Happening in Markets?

Inflation Cuts

Inflation has played a significant role in the economic health of the U.S. and the spending patterns of its citizens. Since 2020, inflation has spiked to a high of 7% and peaked at 9.1% in 2022, the highest level in four decades. This crisis affected interest rates, wages, and the prices of goods and services. The pandemic played a significant role in the rise of interest rates because of supply chain issues, labor shortages, and the need for government aid. These issues have put a tremendous strain on the economy. After four years of high inflation rates, the Federal Reserve is implementing cuts within the week. The inflation rate has fallen to 2.5%, the lowest it has been since the spike. This gradual decrease has led the Fed to forecast a 2% rate soon. Interest rate cuts will impact auto loans, mortgages, and credit card payments. While the plan of cuts is promising, prices are not guaranteed to decrease. Prices are still 20% above what they were in 2021, and implementing a 25 basis cut may not have immediate results. This information is also relevant to voters since the election is approaching, and the decisions made within the next month will affect how people vote in November.

Stock Market Update

The S&P 500 was up 4%, the Nasdaq gained 5.9%, and the Dow Jones Industrial Average rose 2.6% to cap the best week in 2024 for the stock market. The market rally was driven by cyclical sectors such as real estate, industrials, utilities, and communication services, as lower rates and optimism about the Federal Reserve’s upcoming rate cuts boosted stock indexes in general. Investors also continued to aggressively buy shares of megacap tech and semiconductor stocks like Nvidia, Super Micro, and Microsoft, up 14.6%, 3.4%, and 6.11%, respectively. For earnings reports, Adobe beat earnings but missed on guidance, and the stock slipped 10% on Thursday. Meanwhile, Kroger beat earnings and had a positive outlook, leading to the stock up 6% this week. Overall, this market recovery is a welcome sign, as the stock market rebounded from a lackluster start to September, typically the month where stocks underperform the most. However, investors should remain prepared for further volatility, with the Fed’s policy meeting on September 17-18 coming up soon. The central bank is anticipated to lower interest rates by 25 basis points, which should catalyze the stock market to reach new highs.

Stock Evaluations

Hertz Global Holdings

Hertz Global Holdings (NASDAQ: HTZ) is a rental car service providing vehicle rental business globally through its varying brands such as Hertz, Dollar, and Thrifty. They are located in over 150 countries and can be found at over 45 airports and 1,000 locations. Hertz has experienced significant fluctuations in its stock performance over the past few years, emerging from bankruptcy in 2021 and having notable recovery but still struggling with volatility due to various market and company developments. Over the past year, Hertz has been down approximately 70% and has declined approximately 82% from its peak. However, in the past week, Hertz's stock has surged over 10% due to Hertz’s recent positive earnings report, which has been impacted by rising rental car prices throughout the sector. This is due to various factors including, but not limited to, the mass “defleeting” of rental cars, where cars were sold for over 50% of their 2019 prices, which in turn caused rental car fleets to shrink and drive prices upwards for rentals. This has helped Hertz’s revenue to remain strong despite their profitability challenges. Despite their substantial revenue, Hertz has reported an EPS of -1.44 in Q2 2024 and failed to meet analyst expectations for revenue by achieving $2.35 billion, slightly below analyst estimates of $2.48 billion. In addition to this, Hertz reported a 37% net income loss margin. Despite their P/E ratio being approximately 0.82, their EPS being -1.44 indicates a robust negative trend of Hertz’s performance. Hertz’s biggest competitors are currently Enterprise and Avis Budget Group. While Enterprise is privately held, Avis is presently at a P/E ratio of approximately 3.22 and EPS of $0.41, presenting a seemingly better buy than Hertz. Hertz also has a high debt-to-equity ratio of 886%, showing a significant reliance on debt. Ultimately, Hertz is recommended as a sell as, despite the price seemingly surging this past week, the broader overview of the company seems to point in a downturning direction.

AstraZenenca

AstraZeneca(Nasdaq: AZN) is a global biopharmaceutical company focusing on researching, developing, and manufacturing prescription medicines. The primary business segments of Astra Zeneca are oncology, Biopharmaceuticals(Including Cardiovascular, Renal & Metabolism, and Immunology), and rare diseases. Astra Zeneca has seen a considerable increase in the top line over the past few years, with the revenue increasing by over 5% last year and about 7% in the past two quarters. The gross profit has increased by over 61% within the previous three years. As published in their recent annual report, Astra Zeneca had 56 submissions and approvals of new medicines in major markets. One of the significant news items was the approval of the new molecular entity. Astra Zeneca has outperformed the sector in nearly all aspects, and one of the metrics that stands out is the debt-to-equity ratio at 0.69, while the industry average is 40.19. Based on the market scenario post-COVID, people are trying to live a healthier life while there is an increase in the number of viruses like monkeypox. Astra Zeneca is really in a position where it can help the world solve these problems. The stock is up by 14% over the past year and about 83% in the past five years. The PE ratio is expensive at 38 while the Industry PE is almost equal to 23, with the leading competitors including GSK plc, Novartis AG, Merck & Co., Inc., and Bristol-Myers Square. Astra Zeneca has the potential to grow its EPS to 6 by 2025 from the current EPS of 3.63 with its current management guidance, leading to a price target of $97.00, showing a potential upside of 24.36% upside from its current share price. Astra Zeneca is recommended as a buy, as the stock price has gained momentum over the past few years. It still has the potential to be the market leader with the growth rate, the low debt-to-equity ratio, especially in the pharmaceutical industry, and the EPS growth through innovation and sustainability.

Exxon Mobil

Exxon Mobil Corporation (XOM) is an American international oil and gas corporation that is focused on facilitating modern life, mainly through the energy, chemicals, and lubricant industries. The company owns Esso and XTO Energy in addition to their ExxonMobil partnership. As of September 13th, 2024, XOM is trading at a 6.01x EBITDA which is significantly higher than the industry average. This can be attributed to a couple of different factors. To bolster their presence in the Permian Basin, XOM acquired Pioneer Natural Resources Company on May 3. This, combined with XOM’s 1.4 million acres spread across the Delaware and Midland basins, has given XOM approximately 16 billion barrels of oil. Apart from XOM’s operations in the Permian basin, it also has a strong profit source from its offshore Guyana resources. In terms of its PE ratio, XOM is currently valued at 13.62, which is similar to its competitors Occidental Petroleum and Chevron, but not quite as strong as its other competitors Suncor Energy and BP which boast PE ratios of 8.04 and 9.76 respectively. Its PE ratio in regards to the averages for the petroleum refining and energy sector industries are drastically different however. XOM’s PE ratio is similar to the average PE ratio of the Energy Sector of 14.23, while it’s significantly higher compared to the average PE ratio of the Petroleum Refining Industry of 8.52. XOM should be able to close the gap to the petroleum refining industry’s average PE ratio as it begins to invest in the lithium market, which is in high demand due to its use in EV battery production, and increase its potential earnings. Furthermore, XOM’s debt to capitalization ratio is 13.52% which is drastically lower than its competitor BP which has a DTC ratio of 40%. XOM has been able to maintain a low DTC ratio compared to its competitors in the industry because of generally positive commodity prices that allowed the company to pay its creditors during the pandemic. Overall, even though there is a level of uncertainty that will come with XOM entering the new Permian Basin and Guyana regions, XOM is still recommended to buy. The company’s positive financial standings in relation with its competitors and growth within the chemical, energy, and lubricant industries makes the stock a strong pick among investors today.