U.S. jobs report, Fed rate hike outlook in focus.
CF Industries stock is a buy due to fertilizer shortage in Europe.
Coinbase set to struggle amid crypto market turmoil, risk-off trade.
Stocks on Wall Street plunged on Friday, with the Dow sinking 1,000 points after Federal Reserve Chair Jerome Powell signaled in his Jackson Hole speech that the central bank will keep hiking interest rates to tame inflation.
“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy,” Powell said.
The major averages fell for a second straight week. The blue-chip Dow Jones Industrial average tumbled 4.2%, while the benchmark S&P 500 and the tech-heavy Nasdaq Composite lost 4% and 4.4%, respectively.
The coming week is expected to be another busy one as markets continue to weigh the Fed’s monetary tightening plans for the months ahead.
On the economic calendar, most important will be Friday’s U.S. employment report for August, which is expected to show solid job gains but a slowing from July’s strong growth.
Meanwhile, there are just a handful of companies reporting corporate results as Q2 earnings season winds down, including Best Buy (NYSE:BBY), Lululemon (NASDAQ:LULU), Broadcom (NASDAQ:AVGO), and Crowdstrike (NASDAQ:CRWD).
Regardless of which direction the market goes, below we highlight one stock likely to be in demand and another which could see further downside.
Remember though, our time frame is just for the upcoming week.
Stock To Buy: CF Industries
CF Industries (NYSE:CF) – which was one of just five S&P 500 stocks that closed Friday’s challenging session in positive territory – could see further gains in the week ahead due to mounting fears over Europe’s dwindling ability to produce enough fertilizer supplies for its crops.
More than 70% of European output capacity has been shut down as soaring natural gas prices “make it impossible for European producers to compete,” according to Fertilizers Europe, which represents most of the continent’s producers.
The shortage in Europe will likely prompt some of the region’s leading companies to seek out new suppliers as they are forced to increase their reliance on imported fertilizer products.
That puts CF in prime position to shine as its core business operations involve manufacturing, producing, and distributing agricultural fertilizers, such as ammonia, and ammonium nitrate, as well as related hydrogen and nitrogen products.
CF Industries Daily Chart
CF stock jumped to a new intraday record high of $119.60 on Friday, before closing the week at $118.35.
At current levels, the Deerfield, Ill.-based fertilizer giant – which has outperformed other notable names in the thriving sector, such as Nutrien (NYSE:NTR), Corteva (NYSE:CTVA), and Mosaic (NYSE:MOS) – has a market cap of roughly $23.6 billion.
Year to date, shares of CF Industries have soared 67% thanks to a powerful combination of robust worldwide fertilizer demand, tightening global supplies, and booming prices resulting from geopolitical hostilities between Russia and Ukraine.
Despite sizable gains, I believe there is still room for CF shares to march higher due to mounting fears that European fertilizer companies will be forced to halt output of nitrogen fertilizers and cease ammonia production due to the continent’s worsening energy crisis.
Indeed, with a relatively cheap price-to-earnings ratio of 9.6, shares of CF Industries, which has reported explosive earnings and sales growth for the last three quarters, are still extremely undervalued.
Stock To Dump: Coinbase Global
Coinbase (NASDAQ:COIN) is forecast to suffer another disappointing week amid the ongoing impact of several negative factors plaguing the beleaguered cryptocurrency exchange company.
Year to date, COIN shares have lost a whopping 73.5%, significantly underperforming the broader market, as the Federal Reserve’s aggressive rate hike plans triggered a violent selloff in non-profitable technology companies with lofty valuations.
Higher yields and expectations of tighter Fed policy tend to weigh heavily on highly valued growth names as it threatens to erode the value of their longer-term cash flows.
Coinbase Global Daily Chart
COIN stock – which fell to an all-time low of $40.83 on May 12 – ended Friday’s session at $66.74. At current valuations, the crypto exchange platform operator – which is 82% below its April 2021 record peak of $429.54 – has a market cap of $15 billion.
Besides a challenging macroeconomic backdrop, Coinbase has also struggled due to deteriorating crypto market conditions and lower retail trading activity.
Bitcoin briefly fell below the important $20,000 level on Sunday to reach its lowest since July 14 as investors dump risk-sensitive assets amid the current environment.
Bitcoin Weekly Chart
Several other popular cryptocurrencies, such as Ethereum, Dogecoin, and Shiba Inu – which can all be bought and sold on Coinbase – also experienced heightened volatility in weekend trade.
Taking that into account, shares of the struggling crypto exchange pioneer will likely remain vulnerable to sharp swings in the days ahead.
Disclosure: At the time of writing, Jesse had a position in CF stock. 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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Interest rate hikes
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