1 Stock to Buy, 1 Stock to Sell This Week: Costco, ExxonMobil

  • Stock Market Analysis
  • Editor's Pick
  • Fed meeting, CPI inflation, and retail sales will be in focus this week.
  • Costco stock is a buy with Q3 earnings, guidance beat on deck.
  • ExxonMobil shares are a sell amid ongoing slump in energy prices.
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Stocks on Wall Street finished higher on Friday to notch another winning week after a robust U.S. jobs report fueled investor optimism about a soft landing for the economy.

The S&P 500 's close was its highest since March 2022, while the Nasdaq's close was its highest since April 2022.

S&P 500 vs. Nasdaq vs. Dow

For the week, the blue-chip Dow Jones Industrial Average rose about 0.1%, the benchmark S&P 500 advanced 0.2%, and the tech-heavy Nasdaq Composite tacked on 0.7%.

It marked the sixth straight week of gains for the major averages, the longest such winning streak since 2019.

The week ahead is expected to be another volatile one, as investors brace for two of the biggest economic events that remain for 2023.

The Federal Reserve will announce its rate decision at its last meeting of the year on Wednesday. After raising borrowing costs by 525 basis points since March 2022, the Fed is widely expected to keep interest rates unchanged for the third meeting in a row as policymakers assess signs of economic softening.

Fed Chair Jerome Powell’s comments on the pace of future rate increases will be in focus as investors believe the U.S. central bank is all done tightening and could even start cutting rates as early as next spring.

Weekly Calendar Events

Meanwhile, on the economic calendar, most important will be Tuesday’s U.S. consumer price inflation report for November, which is forecast to show annual CPI rising 3.1%, slowing from the 3.2% increase recorded in October.

In addition to the Fed and the CPI report, the latest retail sales data will also be closely watched this week.

Elsewhere, some of the key earnings reports to watch include updates from Oracle (NYSE: ORCL ), Adobe (NASDAQ: ADBE ), Costco, Lennar (NYSE: LEN ), and Darden Restaurants (NYSE: DRI ) as Wall Street’s Q3 reporting season draws to a close.

Regardless of which direction the market goes, below I highlight one stock likely to be in demand and another which could see fresh downside. Remember though, my timeframe is just for the week ahead, Monday, December 11 - Friday, December 15.

Stock to Buy: Costco

After closing at a new record high on Friday, I believe Costco's (NASDAQ: COST ) stock will outperform this week as the membership-based warehouse club’s latest financial results will easily top estimates thanks to favorable consumer demand trends.

The Issaquah, Washington-based warehouse retailer is scheduled to deliver its fiscal first quarter update after the U.S. market closes on Thursday at 4:15PM ET.

According to the options market, traders are pricing in a swing of around 3% in either direction for COST stock following the report. Shares inched up about 1% after the company’s last earnings report in late September.

Despite a challenging environment for retailers, I reckon Costco is also poised to deliver upbeat guidance as it continues to benefit from changes in frugal consumer behavior amid the current economic backdrop.

In addition, many market participants have speculated about a much-expected membership fee increase, which could finally come this quarter. Currently, the typical annual Costco membership costs $60, while the higher-tier ‘Executive Membership’ costs $120, and includes some additional perks.

Costco is seen earning $3.42 per share, up 11.4% from EPS of $3.07 in the year-ago period. If confirmed, that would mark the fourth straight quarter of double-digit gains in quarterly profit.

Meanwhile, revenue is forecast to climb 6.1% annually to $57.7 billion, reflecting strong grocery sales and favorable membership trends.

Costco Earnings Forecast

As such, fiscal Q1 U.S. same-store sales - which grew 3.1% in the previous quarter excluding changes in gas prices - will likely top estimates as American consumers flocked to the wholesale retailer’s stores to find attractive deals and bargains.

Indeed, Costco had 71 million paid household members as of the end of September, up nearly 8% year over year.

COST stock ended Friday’s session at $610.78, its highest ever closing price. With a market cap of $271 billion, Costco is the world’s second most valuable brick-and-mortar retailer, trailing only Walmart (NYSE: WMT ).

Costco Chart

Costco has stood apart from other retailers this year, with shares rising 33.8% year-to-date. That compares to an increase of 11% recorded by the SPDR® S&P Retail ETF (NYSE: XRT ), which tracks a broad-based, equal-weighted index of U.S. retail companies in the S&P 500.

Stock to Sell: ExxonMobil

I believe ExxonMobil (NYSE: XOM ) shares will suffer a challenging week ahead as investors fret over falling energy prices due to sluggish global demand amid the increasingly uncertain economic climate.

Crude oil futures suffered their seventh straight weekly decline on Friday, the longest streak of weekly losses in almost half a decade, due to lingering fears about a global supply surplus at a time when global oil demand appears to be stalling.

The U.S. WTI oil futures contract fell to $68.80 per barrel on Thursday, its lowest since late June, while Brent crude futures, the global benchmark, also fell to a six-month trough.

U.S. WTI Oil Chart

Despite sizable losses, I reckon there is still more downside on the horizon given the downbeat near-term outlook for global oil demand, combined with weak underlying fundamentals and fragile chart technicals.

Concerns that supply will outstrip demand have weighed on energy prices in recent weeks amid worries that OPEC+ members will sidestep their voluntary pledge to collectively cut production by 2.2 million barrels per day early next year.

That comes as U.S. crude production was near record highs of over 13 million barrels per day in the week to Dec. 1, threatening to exacerbate oversupply concerns.

XOM stock ended Friday’s session at $99.54, after falling to a nine-month low of $98.09 on Thursday, a level last seen on March 3.

ExxonMobil Chart

It should be noted that from a technical standpoint, ExxonMobil shares remain below both their 50-day and 200-day moving averages, which usually signals more losses ahead.

After an upbeat start to the year, the global energy giant has come under heavy selling pressure in recent weeks, which saw it wipe out its gains for the year.

With three weeks left in 2023, XOM shares are down 9.8% year-to-date, and are 17.5% below their all-time high of $120.70 reached in late September.

The Irving, Texas-based ‘Big Oil’ company has a market cap of $397.9 billion at its current valuation, making it the largest U.S. oil producer and the 15th most valuable public company in the world.

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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY (NYSE: SPY )), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE: XLK ). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.

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