Market Note – December 10, 2024

By Hightower Great Lakes on December 10, 2024

Finding Quality Companies

In December, we review stock performance in the year and decipher what names could experience mean reversion over the next twelve months.

The goal of this exercise is to find quality companies that the market did not appreciate over the previous twelve months and see if there are catalysts coming in the next year that could turn the story around. In our opinion, there are a few companies that might experience such a turnaround.

Zscaler (ZS), Las Vegas Sands (LVS), Accenture (ACN), and Target (TGT) are four names that we believe may see a turnaround in 2025. Starting with ZS, cybersecurity has the possibility of being bigger than artificial intelligence.

The total addressable market for cybersecurity is north of $2 trillion over the next ten years, and ZS has lagged the broader cybersecurity industry in 2024 – First Trust NASDAQ Cybersecurity ETF (CIBR) is up 20.7% year-to-date (YTD) while ZS is down -4.3% YTD.

In the previous quarter, ZS beat estimates and raised guidance, with annual recurring revenues expected to hit $5 billion in 2025/2026 (from $3 billion currently). LVS is all about recovery in Macau.

The company has been negatively affected by restorations over the past year and has lost some market share as a result. The catalyst for LVS is its analyst meeting in spring 2025. ACN is up 3% YTD and has been a big laggard.

It is the number one player in the consulting industry with exposure to artificial intelligence and cybersecurity – two of our favorite themes. ACN recently reported its highest book-to-bill ratio in the last 20 years with $20 billion in new bookings.

TGT is experiencing a product mix issue, not a traffic issue. Management changing its mix towards more consumables and less discretionary items should be positive for earnings. 

We think these four companies could see a positive turnaround in 2025, and we continue to monitor the economic environment and listen to management commentary for indications of improvement.

Chart 1: ZS, LVS, ACN, and TGT Are All Lagging the Broader Market in 2024[1]

Data Providing a Clearer Picture

Investors received a flurry of economic data last week that pushed the December Fed cut probability to 90%. ISM Manufacturing data, although still in contraction, improved 200 basis points (bps) from October.

ISM Services came in slightly below expectations but remain in expansion across every input: prices, business activity, employment trends, new orders, and inventories.

Ending the week, November’s job market data came in better than expected with higher revisions for September and October. The unemployment rate ticked higher to 4.2%, and wage growth remains strong at 4%.

Altogether, the economy continues to expand at an above-trend pace with the labor market balanced, inflation declining, and wages growing – all positives for corporate earnings.

Fixed Income

U.S. Treasury yields continued to decline across the curve last week; the 2-, 10-, & 30-year yields fell 5, 2, & 2 bps, respectively. All eyes will be on the U.S. CPI and PPI on Wednesday and Thursday as they mark the final inflation data points ahead of the Federal Open Market Committee’s (FOMC) December 18th meeting. Currently, futures are pricing an 89% probability of a 25 bp cut.

Investment Grade spreads finished the week wider by 2 bps to +118 while High Yield spreads also tightened by 2 bps to +309. For the fourth week in a row, U.S. credit ratings deteriorated as the main rating agencies issued 34 downgrades and 27 upgrades.

For the week ending December 4, money market mutual funds pulled in $96 billion, a 10-week high as flows into Fixed Income ETFs jumped 79% compared to the prior week, helped in part by a surge of money into Investment Grade corporate bond ETFs.

Tax-exempt yields followed Treasuries, with yields falling 2-3 bps across the curve. Fund flows remained positive for the 23rd consecutive week.

The Week Ahead

Earnings – Monday: ORCL; Tuesday: AZO; Wednesday: ADBE; Thursday: AVGO, COST, NDSN.

Economics – Monday: Wholesale Inventories; Tuesday: NFIB Small Business Index, Unit Labor Costs, Productivity; Wednesday: November CPI, Hourly Earnings; Thursday: November PPI, Initial Claims, Continuing Jobless Claims; Friday: Export Prices, Import Prices.

Return for Selected Indices^[2]

Click here to read last week’s Market Note (12/3).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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[1] Source: FactSet. As of December 6, 2024.

[2] Source: Bloomberg. As of December 9, 2024.