For Immediate Release
Chicago, IL – September 12, 2022 – Zacks Equity Research shares Cal-Maine Foods CALM as the Bull of the Day and Newmont Corp. NEM asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Union Pacific Corp. UNP and Norfolk Southern Corp. NSC.
Here is a synopsis of all four stocks.
Bull of the Day:
Cal-Maine Foods, a Zacks Rank #1 (Strong Buy), has been a substantial beneficiary of the surge in commodity prices this year. The stock hit an all-time high in price earlier this year, and after a summer pullback, CALM is now knocking on the door to eclipse those former highs. The company sports an ‘A’ rating for our Zacks Growth Style Score and a ‘B’ rating for our Zacks Momentum Style Score, indicating a strong likelihood that the stock propels higher on the powerful combination of positive earnings estimate revisions and stock price performance.
CALM is a component of the Zacks Agriculture – Products industry group, which currently ranks in the top 39% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months. Historical research studies suggest that approximately half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
By targeting stocks contained within the top industry groups, we can dramatically improve our odds of success.
Cal-Maine Foods produces, packages, and distributes shell eggs. The company offers specialty shell eggs such as nutritionally enhanced, cage free, organic, and brown eggs under recognized brand names including Egg-Land’s Best, Land O’ Lakes, Farmhouse Eggs, and 4-Grain. CALM markets and sells its products to national and regional grocery store chains, club stores, independent supermarkets, and foodservice distributors. Cal-Maine Foods was founded in 1957 and is based in Ridgeland, MS.
This summer, retail shell egg prices reached record highs. Egg prices soared 38% year-over-year in July, as consumers continued to battle with increased prices at grocery stores. And while egg prices came down in August, the underlying trend remains remarkably positive – a bullish sign for CALM investors.
Earnings Trends and Future Estimates
CALM has built up an impressive earnings history, surpassing earnings estimates in three of the past four quarters. The egg producer most recently reported fiscal Q1 EPS back in July of $2.25/share, a 50% beat over the $1.50 consensus estimate.
For the company’s fiscal second quarter, analysts are projecting that CALM delivered EPS of $1.98/share, reflecting an astounding 635.14% growth rate versus the same quarter in the prior year. CALM is scheduled to report the quarterly results on September 27th.
It’s a similar situation when we zoom out and view the full-year estimates. Analysts following the company have raised estimates by 107.75% over the past 60 days. The Zacks Consensus Estimate for fiscal 2023 earnings now stands at $5.63/share, translating to growth of 107% relative to last year. Clearly, the growth is there for CALM investors.
Let’s Get Technical
CALM shares have advanced 60% this year during the bear market. Only stocks that are in extremely powerful uptrends are able to make this type of price move while the market makes a series of lower lows. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Notice how both the 50-day moving average (blue line) and 200-day moving average (red line) are sloping up and have acted as support this year throughout the bullish move. The stock had been making a series of higher highs into April and experienced a pullback into the early summer. A new leg higher has begun, with the stock headed back to all-time highs. With both strong fundamentals and technicals, CALM is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Cal-Maine Foods has recently witnessed positive revisions. As long as this trend remains intact (and CALM continues to deliver earnings beats), the stock will likely continue its bullish run this year. 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.
CALM is rated a best-possible ‘A’ for our Zacks overall VGM score, and it’s easy to understand why that’s the case. Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix. Backed by a leading industry group and robust history of earnings beats, it’s not difficult to see why this company is a compelling investment.
In addition, CALM currently pays a $3.00 annual dividend, equating to a very respectable 5.27% dividend yield. Recent positive earnings estimate revisions will help to provide a cushion during any potential market decline. This long-term stock market winner continues to prove its doubters wrong, and investors would be wise to consider CALM as a portfolio candidate if they haven’t already done so.
Bear of the Day:
Newmont Corp. is engaged in the exploration and production of gold, copper, silver, zinc and lead. NEM conducts business primarily in North America, South America, Australia, and Africa. The Colorado-based firm was founded in 1916 and operates several active mines in Peru, Australia, Ghana, and Nevada.
The Zacks Rundown
Newmont, a Zacks Rank #5 (Strong Sell) stock, has been severely underperforming the market since experiencing a climax top back in April. Shares have lost nearly half of their value after the peak in price and have been in a sustained downtrend ever since. The stock is hitting a series of 52-week lows and represents a compelling short opportunity as the market continues its volatile start to the year.
NEM is a component of the Zacks Mining – Miscellaneous industry group, which ranks in the bottom 37% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months.
Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more treacherous.
NEM is also overvalued relative to its industry group, irrespective of the valuation metric used.
Recent Earnings and Deteriorating Forecasts
Earnings misses have been a sore spot for NEM during the past year. The mining company has fallen short of estimates in three of the past four quarters, with an average miss of -9.75% over that timeframe. NEM most recently reported Q2 EPS back in July of $0.46/share, missing the $0.60 consensus estimate by -23.33%. When you’re consistently missing earnings estimates by a wide margin, you’re going to be fighting an uphill battle when it comes to the stock price.
Analysts covering NEM are in agreement and have slashed their earnings estimates across the board. For the year, estimates have decreased 20.91% over the past 60 days. The Zacks Consensus Estimate now stands at $2.61/share, reflecting negative growth of -11.82% relative to last year. These are the types of negative trends that the bears like to see.
NEM stock has been steadily falling since April, declining -47.8% since the peak and has now established a well-defined downtrend. Shares have declined more than 60% in the past year. The stock continues to trade below both averages, while the 50-day moving average has acted as steady resistance throughout the down move.
NEM was unable to rally over the summer along with the general market. When a stock continues falling even when the market is rallying, it’s telling us “I’m very weak.” Shares have fallen nearly 30% year-to-date and are showing no signs of an end to the downward movement.
While not the most accurate indicator, NEM has also experienced what is known as a ‘death cross,’ wherein the stock’s 50-day moving average crosses below its 200-day moving average. NEM would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock.
The recent earnings misses in addition to deteriorating estimates are both huge red flags and need to be respected. These will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
NEM’s characteristics have resulted in a second-worst possible Zacks Value Style Score of ‘D’, and a Zacks Momentum Style Score of ‘C’, indicating further downside is likely. The fact that NEM is included in a bottom-performing industry group simply adds to the growing list of concerns. Investors will want to steer clear of an overvalued NEM until the situation shows major signs of improvement, or possibly include it as part of a hedge or short strategy.
2 Railroad Stocks with Impressive Dividend Yields to Watch
Freight revenues account for the bulk of the top line for stocks in the Zacks Transportation-Rail industry. However, with volatility ruling the roost as far as the U.S economy is concerned, freight revenues have been moving south of late.
The Cass Freight Shipments Index declined 1.7% month over month in July. What is more concerning is that the measure has decreased in four (January, April, June and July) of the seven months reported so far this year. High inflation apart, supply-chain woes, inducing labor and equipment shortages, are hurting railroad volumes.
Due to the above-mentioned headwinds, the railroad industry has underperformed the S&P 500 Index over the past six months. The stocks in this industry have collectively lost 9.3%, while the Zacks S&P 500 composite has declined 7.5%.
Now the question is, does the presence of these headwinds imply that stocks from this industry should be ignored by investors? The answer is a categorical no. We believe that dividend-paying railroad stocks like Union Pacific Corp. and Norfolk Southern Corp. should be on investors’ watch list despite the downtrends.
Investors are always on the lookout for dividend stocks as these provide a steady source of income and a cushion against market uncertainty, as is the current scenario. Dividend stocks not only provide a solid income stream but also have fewer chances of experiencing wild price swings.
Dividend stocks are safe bets for creating wealth, as the payouts generally act as a hedge against economic uncertainty. In view of the tailwinds mentioned, it can be safely said that dividend-paying stocks appear as a preferred option compared to non-dividend-paying stocks in periods of high degree of market volatility as the present situation.
We zeroed in on the above-mentioned railroad dividend-paying stocks by running the Zacks Stocks Screener. Our choices have a dividend yield in excess of 2% and a dividend payout ratio of less than 50%. Also, both stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Union Pacific is based in Omaha, NE, and has a market capitalization of $142.87 billion, currently. UNP’s strong free cash flow-generating ability pleases us. It supports UNP’s shareholder-friendly activities. Cash from operations in 2021 came in at $9 billion, up 6% year over year. Free cash flow increased 8.8% to $3,523 million in 2021. Cash flow conversion rate was a healthy 73% in the first half of 2022. However, supply-chain woes are bothersome.
The stock has a dividend yield of 2.26% and five-year annualized dividend growth of 13.65%. UNP's payout ratio is 48% of its earnings at present. Check Union Pacific’s dividend history here.
Union Pacific Corporation dividend-yield-ttm | Union Pacific Corporation Quote
Norfolk Southern is based in Atlanta, GA, and currently has a market capitalization of $57.13 billion. NSC’s strong free cash flow generating ability supports its shareholder-friendly activities. In 2021, NSC generated a free cash flow of $2,785 million, up 30% year over year. In first-half 2022, free cash flow was $1,174 million. NSC expects current-year dividends in the 35-40% range of its net income. Management expects to utilize the remaining cash flow and financial leverage to repurchase shares.
The stock has a dividend yield of 2.02% and a five-year annualized dividend growth of 13.63%. NSC's payout ratio is 39% of its earnings at present. Check Norfolk Southern’s dividend history here.
Norfolk Southern Corporation dividend-yield-ttm | Norfolk Southern Corporation Quote
Why Haven’t You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
See Stocks Free >>
Zacks Investment Research
800-767-3771 ext. 9339
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Union Pacific Corporation (UNP) : Free Stock Analysis Report
Norfolk Southern Corporation (NSC) : Free Stock Analysis Report
Newmont Corporation (NEM) : Free Stock Analysis Report
CalMaine Foods, Inc. (CALM) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research