If investors have learned one thing since the start of the pandemic it is to buy the dips. The major stock market plunge of last year and every minor one since has turned out be a chance to scoop up some ‘bound to rebound’ shares. The latest market recovery may be the most unlikely of the bunch.
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A week ago, fears about the spreading Omicron variant caused an abrupt reversal in the S&P 500 as volatility returned with a vengeance. Fast forward to this week and easing virus concerns and the fears of earlier than expected Fed action suddenly has equity markets in celebration mode. Through Tuesday, the S&P was up almost 200 points, or 4.3%, from its December 3rd low in a stunning reversal of fortunes.
The rally has been broad-based with economically sensitive names and reopening plays leading the way. With Friday morning’s inflation reading looming, it remains to be seen if investors stay in the holiday spirit. But for now, these are the three stocks leading the S&P sleigh higher in a possible push to yet another record high.
What is the Best Performing Stock This Week?
Norwegian Cruise Lines (NYSE: NCLH) stock advanced 10% in the first two trading days of the week, the best performance among S&P 500 constituents. Since climbing as high as $34.49 in March 2021, the cruise line operator has faced lingering concerns about the impact of the pandemic—and Omicron developments didn’t help matters.
But with seemingly more to gain than lose compared to most stocks, Norwegian has been a popular way to play the reopening theme this week. Not even reports of 10 Norwegian crew members and guests testing positive for Omicron could deter investors from buying. Instead, news that the variant, while more transmissible, has less damaging health effects, caused a sigh of relief rally in cruise line stocks and all things travel.
Norwegian still has its work cut out for it if its going to sail anywhere near its pre-pandemic peak near $60. Not only do travel restrictions need to subside, but the company’s financials need stark improvement to attract the big institutional money. Pending pandemic developments, there may be smoother waters ahead, but in the near-term expect Norwegian to remain a volatile reopening trade mainly boarded by retail traders.
Why is MarketAxess Stock Going Up?
MarketAxess (NASDAQ: MKTX) is rather quietly the second-best performing name thus far in the still-nascent Omicron recovery up 9% since Friday. Aside from the trading platform provider’s general association with upward trending capital markets, the stock got a boost from a bullish report from Rosenblatt Securities over the weekend. The analyst there reiterated his buy rating and set a $505 price target which implied 45% upside from Friday’s close. Investors took notice and MarketAxess shares rose 4% and 5% on back-to-back days.
The stock also got a boost from news that European liquidity provider Flow Traders is brining its services to the MarketAxess platform for a range of fixed income asset classes including U.S. high yield bonds. The deal will expand the company’s relationship with Flow Traders and bring added liquidity and transparency to Market Axess’s global network of institutional investors. Through the end of the third quarter, more than $2 trillion of global bond securities were traded on MarketAxess.
Is Diamondback Energy Undervalued?
Diamondback Energy (NASDAQ: FANG) is off to a strong start this week, up 9% through Tuesday. That’s because subsiding Omicron concerns have sparked a major relief rally in the price of WTI crude oil which has surged from $66.26 on Friday to approximately $72. Oil producers have enjoyed a similar rally with higher beta names like Diamondback benefitting the most.
Adding fuel to Diamondback’s 139% year-to-date run was favorable commentary from sell-side research firm Truist Financial on Monday. The analyst bumped his price target $2 to $150. He also reiterated his buy rating lauding Diamondback’s moderating spending levels and low-cost production. Last quarter the company’s cash operating costs were $9.97 per barrel of oil equivalent (BOE), which confirmed its status as one of the highest margin oil producers in the Permian Basin.
Diamondback’s above peer financial health has made it a popular way to play the energy market recovery this year. Through the end of the third quarter, it had a $457 million cash position and manageable 36% debt-to-capital ratio. As the company continues to generate strong cash flow in a rising oil environment, it noted plans to distribute half of the cash flow to shareholders in the form of dividends and buybacks. Despite its meteoric rise in 2021, at 7x next year’s earnings Diamondback remains one of the biggest values in the large cap energy sector.