On Monday, we posted about ETFs to watch this week. One of those was the Invesco S&P 500 High Beta ETF. As you scan down the list of top holdings, you’ll see a number of companies that have high short interest. The rotation to more value-oriented companies with high short interest was likely going to be a key driver if the market were to test the all-time high this week. One look at the fund and its holdings and you’ll see that’s exactly what happened.
The market right now is in a precarious position as optimism started to build last week. Goldman began raising their outlook for earnings, which we discussed yesterday, and if the S&P 500 was going to move to new highs, it was going to have to drag the value parts of the market higher. One with companies trading at a discount and weak earnings, there may be a reason why they’re down. The value-trap possibilities are real but it’s one of the only areas of opportunity left.
The main characteristics of the names that are moving higher this week are that they are tied to stimulus or infrastructure, typically trading a relatively low valuations and generally have high short interest of around 5% of the float or higher. While they may not meet all the above criteria, most do.
Here are 5 high beta companies leading the S&P 500 this week.
High Beta Stock #1: Wynn Resorts, Limited (NASDAQ: WYNN)
If you follow unusual option activity, you would have seen significant bullish option activity on a few casino stocks last week. MGM Resorts International (NYSE: MGM), Las Vegas Sands Corp (NYSE: LVS) and Caesars Entertainment (NASDAQ: CZR) all had bullish activity that was pointing to a retest of the June highs last Thursday. This week was the payoff as casino stocks are moving quickly. WYNN is in a good position technically as it broke through the July 15 high on significant volume yesterday. The double bottom breakout on Tuesday has a projection near the June 8 high near $108.
High Beta Stock #2: Albemarle Corporation (NYSE: ALB)
Albemarle isn’t the highest beta stock on the list and isn’t one of the top 100 companies for realized volatility in the past year, but it is a company that has a beta near 1.5, has 13.3% of its float shorted and is having a breakout week. The company announced earnings on August 5 that beat estimates by 17.8% but has had slight negative revisions to EPS following the report. Analysts are also currently projecting a 5-year EPS growth rate of 15%. On Tuesday, ALB broke its $90 resistance and is nearing the 52-week high achieved on February 20. Taking the range of the prior consolidation since the beginning of June, the near-term projection is $105.
High Beta Stock #3: Halliburton Company (NYSE: HAL)
After a surprising earnings report on July 20, the share price of Haliburton has been on the rise. The company was able to do enough cost-cutting the be able to produce a profit amidst a falling rig count in the oil industry.
The achievement places the company in a good position if oil prices start to rise along with the rig count. While that isn’t a certainty, it is in a position to continue to rise with the price of oil. A close above the June 8 high is an indication that the price may run to $21.
High Beta Stock #4: Arconic Corp (NYSE: ARNC)
Arconic is a company that produces rolled metal aluminum products like sheet, plate, extrusions and other architectural products. The company reported a loss of $0.84 per share, a 38% decline from last year. However, the loss was largely due to a $76 million non-cash charge mostly related to annuitize U.K. pension obligations. The company began operating as a stand-alone company on April 1 as the COVID pandemic was just heating up.
The company is looking for their light automotive products and aluminum alternatives to plastic packaging as areas of opportunity. A close above $23.50 is an indication for a short-term move to $28.50.
High Beta Stock #5: Discover Financial Services (NYSE: DFS)
If the economy is going to ramp up, they’ve got to spend, and stimulus distributions may help with that. Also, stimulus funds may help pay debt and prevent default or bankruptcy. It may have been some analysis like this that saw bullish option interest emerge last week in financials. One of the companies to participate in that bullish option interest last Wednesday was Discover.
The company’s share price broke through its $52.70 resistance on Monday and continued higher on Tuesday. The near-term expectation is for the price to retest its June high near $65.