The UK stock market enjoyed a strong week, buoyed by positive economic data that eased recession fears. The FTSE 100 index climbed by 3.9%, marking its best performance since November 2023. The tech-heavy FTSE 100 tech index surged by 5.2%, while the blue-chip FTSE 100 gained 2.9%.
This week promises to be another eventful one as investors turn their attention to the Federal Reserve's annual Economic Policy Symposium in Jackson Hole, Wyoming, commencing on Thursday. A speech by Fed Chair Jerome Powell on Friday will be closely scrutinised for clues on the future of interest rates. As of Sunday morning, markets are anticipating a 25 basis point interest rate cut at the Fed's September meeting, with a 25% chance of a larger 50 basis point cut.
The earnings season is winding down, with a handful of UK companies due to release results, including several retailers such as Tesco, Next, and B&Q. The tech sector will also see earnings reports from companies like Sage, AutoTrader, and Deliveroo.
Against this backdrop, we highlight one stock poised for gains and another that could see further downside. Remember, this analysis focuses solely on the week ahead, Monday, 19th August to Friday, 23rd August.
Stock to Buy: Sage
Sage, a leading provider of cloud-based accounting and business management software, is expected to report another quarter of strong revenue and earnings growth. The company has benefited from the increasing adoption of cloud-based solutions, particularly among small and medium-sized businesses. Analysts anticipate robust demand for Sage's services, fuelled by the continued digitalisation of businesses.
Sage's Q2 earnings announcement is scheduled for Wednesday, 21st August, after the UK market closes. The options market suggests a potential implied move of approximately 8% in either direction for the shares following the release.
Analysts project Sage to report a profit of £0.28 per share, representing a year-on-year increase of 15%. Revenue is projected to rise by 10% to £1.6 billion.
Sage's CEO, Steve Hare, is likely to provide an upbeat outlook for the remainder of the fiscal year, reflecting the company's strong position in the growing cloud computing market.
SGE stock closed Friday's session at £7.45, roughly 10% below its 2024 high of £8.25 reached in February. At current levels, Sage has a market valuation of £14.5 billion. Shares are up 12.4% year-to-date.
InvestingPro's AI-powered models rate Sage with a near-perfect Financial Health Score of 4.0 out of 5.0, indicating strong profitability and a positive growth trajectory.
Stock to Sell: B&Q
B&Q, the UK's largest home improvement retailer, faces a less optimistic outlook. The company's Q2 earnings report, due on Tuesday, 20th August, before the UK market opens, is anticipated to reveal weakening consumer demand trends and an uncertain future.
B&Q has struggled with declining sales in recent quarters, reflecting the impact of cost-of-living pressures and a more cautious consumer spending environment. This is particularly concerning given B&Q's reliance on discretionary spending for DIY projects.
The options market suggests a potential 5% swing in either direction for BQW stock following the release.
Analysts predict B&Q to report a profit of £0.22 per share, down 10% from the same period last year, due to rising cost pressures and declining operating margins. Revenue is expected to fall by 3% year-on-year to £2.8 billion.
Given the ongoing challenges, B&Q's management is likely to provide a cautious outlook for the remainder of the year, highlighting the impact of weakening consumer sentiment.
BWQ stock ended Friday's session at £2.15, representing a market cap of £8.5 billion. Shares are down 7.8% since reaching a 2024 peak of £2.32 in March.
InvestingPro's analysis paints a negative picture of B&Q stock, highlighting concerns over declining profit and sales growth prospects.
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Disclaimer: The views expressed in this article are solely the opinion of the author and should not be taken as investment advice. This article is for informational purposes only and does not constitute a recommendation to buy or sell any security. Please consult with a qualified financial advisor before making any investment decisions.