What Happened?
A number of stocks jumped in the afternoon session after comments from a key Federal Reserve official bolstered hopes for an interest rate cut. New York Federal Reserve President John Williams stated he sees “room for a further adjustment” in the near term, sparking a significant market rally. Following his remarks, the probability of the central bank cutting rates at its December meeting jumped from 39% to over 73%, according to the CME FedWatch tool. This positive sentiment provided relief to markets amid concerns over high valuations, particularly in AI-related stocks.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Branded Pharmaceuticals company Zoetis (NYSE: ZTS) jumped 5.3%. Is now the time to buy Zoetis? Access our full analysis report here, it’s free for active Edge members.
- Outpatient & Specialty Care company Surgery Partners (NASDAQ: SGRY) jumped 4.4%. Is now the time to buy Surgery Partners? Access our full analysis report here, it’s free for active Edge members.
Zooming In On Zoetis (ZTS)
Zoetis’s shares are not very volatile and have only had 5 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 17 days ago when the stock dropped 12.6% on the news that the company reported mixed third-quarter results and cut its full-year sales forecast. Although its adjusted earnings of $1.70 per share beat Wall Street's estimates, revenue of $2.4 billion was flat year-over-year and met expectations. More concerning for investors, Zoetis lowered its full-year revenue guidance to a midpoint of $9.44 billion, a 0.9% decrease from its previous forecast. The company's operating margin also compressed, falling to 37% from 38.3% in the same quarter last year. Ultimately, the lowered sales outlook and margin pressure overshadowed the earnings beat.
Zoetis is down 24.9% since the beginning of the year, and at $122.05 per share, it is trading 31.8% below its 52-week high of $178.84 from December 2024. Investors who bought $1,000 worth of Zoetis’s shares 5 years ago would now be looking at an investment worth $742.64.
The 1999 book Gorilla Game predicted Microsoft and Apple would dominate tech before it happened. Its thesis? Identify the platform winners early. Today, enterprise software companies embedding generative AI are becoming the new gorillas. Click here for access to our special report that reveals one profitable leader already riding this wave.
