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3 Things to Watch in the Stock Market This Week

By Demitri Kalogeropoulos – Aug 1, 2021 at 7:00AM

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Peak earnings season is here.

Stocks dipped slightly last week, as both the Dow Jones Industrial Average (^DJI 2.18%) and the S&P 500 (^GSPC 3.10%) fell by less than 0.5% as hundreds of companies reported second-quarter earnings results.

That torrent continues in the week ahead, so let's look at why Electronic Arts (EA 2.50%), Wayfair (W 15.69%), and Kellogg (K 1.59%) stocks could make big moves over the next few trading days.

Two kids playing console video games.

Image source: Getty Images.

Electronic Arts' gamer base

Electronic Arts' stock has trailed the market in 2021, but that narrative could shift starting with this Thursday's earnings announcement. The video game giant's last report was packed with good news about the business, including surprisingly strong sales, gushing cash flow, and soaring profits.

Wall Street is worried that EA, along with peers like Activision Blizzard, will suffer growth hangovers as people prioritize away-from-home entertainment options following the pandemic. But EA isn't predicting a tough period ahead. In fact, CEO Blake Jorgensen and his team forecast sales gains in the high teen percentage range in fiscal 2022.

EA is also enjoying rising profit margins as its business model shifts toward more of a subscription, service-oriented approach. That tilt promises to have a lasting, positive impact on earnings, which investors should celebrate in this week's quarterly announcement and in subsequent reports through 2022 and beyond.

Wayfair's profit margin

As an e-commerce retailer focused on home furnishings, Wayfair was ideally situated to capitalize on pandemic-related changes in shopping behavior. And it did. The company added $5 billion, or 55%, to its sales base in 2020.

That growth continued in early 2021 but might end in Thursday's announcement. Most investors who follow the stock are expecting Wayfair to post a 2% sales decline for the period that ended in late June.

W Operating Margin (TTM) Chart

W Operating Margin (TTM) data by YCharts

The business will still be much larger than it was in 2019, before the pandemic struck, and Wayfair is also profitable today. CEO Niraj Shah and his team have forecast adjusted operating margins of 20% or more over time. But Wayfair will have to overcome a few big challenges in 2021, including rising costs, for that prediction to play out.

Kellogg's sales update

Kellogg raised its growth outlook following its last earnings report, but investors aren't expecting such good news from the packaged-food specialist on Thursday. The stock has trailed the market by a wide margin in 2021, after all, as Wall Street looks for more exciting growth in niches like tech and e-commerce.

Yes, the cereal giant's expansion pace has slowed to about half of its peak pandemic rate. Yet it is still capitalizing on all the new customers it won as people shifted meal occasions to the home. Kellogg is aiming to grow at a 3% compound annual rate through 2021.

Investors can find faster growth within the consumer-packaged food niche in companies like McCormick or PepsiCo. But Kellogg offers a much meatier dividend (currently yielding over 3.5%) that might convince income investors to give it a closer look, especially if it has more good news to report on Thursday.

Demitri Kalogeropoulos owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool recommends Electronic Arts, McCormick, and Wayfair. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Electronic Arts Stock Quote
Electronic Arts
$130.78 (2.50%) $3.19
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$34,589.77 (2.18%) $737.24
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,080.11 (3.10%) $122.48
Kellogg Stock Quote
$72.95 (1.59%) $1.14
Activision Blizzard Stock Quote
Activision Blizzard
$73.95 (-0.53%) $0.39
Wayfair Stock Quote
$36.64 (15.69%) $4.97

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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