Three Stocks to Watch for the Week of August 1st

Stocks surged into Friday’s close, posting solid gains for the week and the month. Last week, the Dow gained 3.0%, the S&P 500 increased 4.3%, and the Nasdaq Composite went up 4.7%. In the best monthly performance for the major averages since 2020, the Dow rose to a 6.7% gain for July. The S&P 500 added 9.1% for the month. The Nasdaq Composite, while still in bear market territory, is up roughly 12.4%.  

The advances came amid positive quarterly results from major companies like Apple and Amazon, despite growing concerns about weakening customer demand and the highest year-over-year reading for the PCE Price Index (6.8%) since 1982. Of the 277 S&P 500 companies that have reported second-quarter earnings so far, roughly 60% have topped revenue forecasts, and approximately 74% have beat profit projections, according to  Bloomberg. Compared to last year, revenue growth is up 13.8%, and earnings are up 6%.

The energy sector will be a focal point this week, with major oil companies  Diamondback Energy, Marathon Petroleum, and Occidental Petroleum set to report earnings. On Wednesday, OPEC+ will meet to discuss oil production quotas, with some members reportedly considering increasing output as the U.S. presses to raise quotas and drive down prices. We’ll also get an idea of how the labor market is progressing. The June job openings and labor turnover survey (JOLTS) will be released on Tuesday, followed by Friday’s nonfarm payrolls report.  

This week our team has its eyes on a diversified energy name with a track record that speaks for itself. We’ve also got a high-yielding real estate investment for anyone looking for steady income in the back half of the year, plus all the details on a compelling story from the space infrastructure industry.     

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Medical Properties Trust (MPW)  is a healthcare REIT that invests in hospitals; it owns 385 hospital properties representing 42,000 licensed beds across nine countries. The company leases facilities to 50 hospital systems and ranks as the second largest owner of hospital beds in the U.S. Hospital systems enter into sale-leaseback arrangements with the REIT to monetize real estate assets and reduce operating costs. It invests in facilities subject to triple-net leases, meaning the renter is responsible for all property taxes and insurance costs, reducing risk for the trust.  

MPW has delivered 30% annual asset growth and 8% annual FFO per share gains over the past decade. That has helped a string of nine consecutive years of dividend increases, with growth averaging a modest 4% annually.   MPW has a solid history of growth in adjusted funds from operations (AFFO) while steadily decreasing the payout ratio. Since its last increase, the FFO payout ratio decreased from 82% to 78% and remains well below market peers.   

The stock has delivered a 356% total return over the past decade, outperforming both the Health Care Index and the  MSCI U.S. REIT Index. At 7.44%, MPW boasts the second highest yield in the sector behind Omega Health (OHI). Between the increase in dividend coverage and expected revenue growth, we’ll likely see its streak of growing payouts continue. 

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Headquartered in Arlington, VA, the AES Corporation (AES) is one of the world’s leading power companies, generating and distributing power in 15 countries. The company’s diverse portfolio of thermal and renewable generation facilities and distribution businesses spans the Americas, Europe, the Middle East, and Asia. The stock has a history of outperforming the market following rate hikes.    

The Fed’s most recent rate hike cycle began in 2015, during a time when inflation had fallen below the central bank’s 2% target, and interest rates were increased from 0.25% to 0.5%. In the six months following the hike, the S&P 500 saw a series of ups and downs but finished the period with a modest 0.3% gain. AES, however, managed to stack on almost 19% during the six months following the most recent rate hike.  

Before that, Federal Reserve Chairman Ben Bernanke and his colleagues initiated an unprecedented two-year campaign in June 2004 to keep a lid on inflation following the recession of the early 2000s with a 0.25% hike to 1.25%. Six months after the initial rate hike, the S&P 500 had gained 6.2%, while AES stacked on an impressive 37%.    

Will history repeat this time around? There’s no telling, but the pros on Wall Street seem to see that potential. The stock garners an 83% Buy rating among the analysts offering recommendations. A median 12-month consensus price target of $28 represents a 26% upside from the last price.  

Most recently, Goldman Sachs analyst Insoo Kin initiated coverage of the stock with a Buy rating and a $30 price target citing the company’s potential to take advantage of the material clean energy investment pipeline. The analyst predicts an approximately 8% EPS CAGR through 2025 that she sees as underappreciated at current valuations.  

A quick review of their dividend history should provide inspiration if you need another reason to consider AES. The company has steadily increased its dividend over the past ten years while maintaining a sustainable payout ratio of around 70% throughout. 

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The Space Economy is a multi-billion dollar industry today. Still, many expect it to surpass $1 trillion in the coming decades, bringing new opportunities for investors to capture this growing segment of the global economy. The Commerce Department is already throwing its support behind the American space industry with ambitious goals for regulatory reform and promotional efforts.

Space stocks have been under intense selling pressure in the recent rotation out of speculative growth investments. “Many endeavors will indeed fail, but there will be generational winners that emerge out of the rubble, “ Deutsche Bank analyst Edison Yu reminded investors in a recent note to clients.

Momentus (MNTS) is a pure-play space infrastructure company. Unlike Virgin Galactic, which is geared towards being a luxury travel provider, Momentus aspires to be a space infrastructure company for commercial endeavors. This Santa Clara, California-based company states the following as its goal for 2025: 

“We aim to be able to provide a full range of infrastructure services in microgravity and deep vacuum, which will open the door to infinite manufacturing possibilities. Impossibly large next-generation structures will continue to pave new paths for even greater human development in space.”

Momentus has developed what they call a space transfer vehicle. In short, it aims to offer a ride-sharing service for satellites. You see, most satellites need exact orbits. Booking your own launch on, say, a SpaceX Falcon 9 rocket to accomplish that precise orbit is mighty expensive. Momentus allows multiple satellites to hitch a ride on their Vigoride vehicle. In turn, that vehicle will take each satellite to its needed orbit.

Multiple launch agreements have been solidified with SpaceX for four upcoming SpaceX Transporter missions, including the Transporter-6 mission targeted for October, Transporter-7 targeted for January 2023, Transporter-8 targeted for April 2023, and Transporter-9 targeted for October 2023. 

Momentus hopes to meet the needs of customers that want to move their payloads to specific orbits that aren’t accessible directly from Earth-based launches. Over the past year, the S&P 500 has fallen by 9.59%, while MNTS is down -83.63%. The ticker earned $0.94 per share over the last 12 months, giving it a price-to-earnings ratio of just 1.74.