Best stocks to buy now
Shares of the retail auto parts company have fallen nearly 7% in the last month, but Atlantic Equities analyst Sam Hudson recently stated in a note that investors should stick with the stock.
The company reported better-than-expected third-quarter earnings in late May, supporting Hudson’s thesis that the stock is a long-term winner.
Hudson’s recent checks show that AutoZone Pro, the company’s mobile ordering service, is firing on all cylinders, which could propel shares higher.
“With AZO’s Pro sales up +35 percent from the previous year, we believe the company has gained significant market share through the pandemic,” he wrote.
Hudson went on to say that the app’s success will most likely result in “double-digit Pro sales growth over the next five years, adding >250bps to comps and underpinning double-digit EPS growth.”
Furthermore, the stock is relatively cheap in comparison to peers, according to the firm.
“At the current 16x P/E multiple, this robust outlook and AZO’s position as a structural, long-term Covid-19 winner is significantly underappreciated,” he said.
Hudson also predicted that the company would engage in significant buyback activity in the future.
“As a result, we see the recent stock pullback as a compelling buying opportunity and maintain our Overweight rating,” Hudson said.
The American Express Company
According to Wolfe Research analyst Bill Carache, conviction is increasing in the financial payment and credit card industry.
The firm stated that it has been “quietly” bullish on the stock for some time, even as affluent customers stopped spending during the pandemic, but Carache is now ready to speak out.
“That has now changed, and our analysis of recent data points strengthens our conviction that shares are poised to rise,” he said.
Carache acknowledged that business travel may still be slow to return, but all indications point to a quick leisure rebound, which will benefit American Express.
“After scaling back its proactive marketing efforts at the start of the pandemic, AXP is stepping up its game with more appealing welcome offers,” the company said.
Investors should be confident that the inflection point in travel and entertainment spending is near due to the rapid recovery and increased consumer spending, according to Carache.
He wrote, “Consensus is underestimating [the] resurgence in AXP discount revenues.”
Carache also raised his price target on the stock to a Street high of $197 per share, advising investors to take advantage of a “table-pounding” buying opportunity.
This month, the stock is up 2.7 percent.
Shares of the food service and concessionaire company have underperformed this year, falling around 1.3 percent, but in a note this week, Bank of America analyst Gary Bisbee outlined his thesis for why Aramark is a stock to own now and in the future.
“We are becoming increasingly bullish on ARMK, which we see as an underappreciated re-opening concept and compelling post-pandemic story,” he wrote.
The company was well-positioned prior to the pandemic, and Bisbee believes it will pick up right where it left off.
The reopening of stadiums and other venues should also help, he says.
′′“Prior to the pandemic, the Aramark story had been improving with new leadership and an activist on the board,” Bisbee said.
Aramark also has underutilized uniforms, which Bisbee described as a “source of value” for the company.
“We like the emphasis on accelerating organic revenue growth, and we see the strategies in place as credible,” he said.
The stock’s valuation is also appealing, and Bisbee sees an excellent entry point.
“All in, we like the risk-reward here and believe that ARMK will see performance improve before the end of the year,” the firm wrote.
The Market this week
Prior to last week, the S&P 500 had reached a new high of 4232 on May 7. It closed Friday at 4247, up about a third of a percent. However, banks, industrials, and consumer cyclicals have all fallen since then. The deflationary plays have taken the lead, with software up 8% since the old S&P high and real estate investment trusts becoming a new favorite destination for hot money.
The sector and style reversal is, of course, most closely related to one of the most perplexing turns, the rally in Treasuries, which has reduced the 10-year yield to 1.45 percent from 1.75 percent in June. Despite two consecutive months of blistering monthly inflation reports.
There are certainly plausible explanations for the bond’s counterintuitive move. Bonds were more oversold at the end of the first quarter than they had been in years, so this is due to a combination of mean-reversion and short-covering. Foreign investors are pleased to capture higher US yields while hedging against a weaker dollar. The market appears to take the Federal Reserve’s words about patience and not reacting to near-term inflationary flareups at face value.
According to Bank of America, private pension funds are fully funded for the first time in years, prompting them to lock in portfolio values by rotating into fixed-income assets. Certainly, the markets may be signaling that we have passed or are about to pass the point of “peak acceleration” in GDP, corporate earnings, and, yes, inflation.
And perhaps the recent increase in Covid cases in several major countries, the Chinese shipping snarl, rampant supply bottlenecks, a short-term climax in housing demand, an impending decline in the fiscal impulse, and widespread labor shortages are all lining up as potential restraints on the recovery’s velocity in the near term.
Volatility gauges are drooping, indicating a sleepy summer tape. Until September, the economic data may have low stakes and few policy implications. When the kids return to school, the enhanced jobless benefits expire, and the easy comparisons with the 2020 lockdown quarters end, the Fed will have had time to set the stage for its next move, and more Americans may choose to re-engage in the labor market to take some of the 9.3 million open jobs, in a delayed return to normal.
What should be done?
Those are the whys, but the more pressing question is what, if anything, should be done about it.
For the time being, this subtle shift in market character appears to be more of a bout of mean reversion than a decisive inflection point, with “reflation trade” favorites working off overbought and over-loved conditions, while big-growth and speculative-tech stocks caught up after becoming less expensive and crowded 8-10 months ago.
Even after their recent loss of altitude, the longer-term uptrends in financials and industrials relative to the S&P 500 remain intact. Similarly, while the 10-year Treasury yield has recently fallen, the run from 0.5 percent to 1.7 percent was so steep that the pullback appears to be a digestion rather than a breakdown, though it is becoming a close call.
Consumer discretionary stocks appear to be under pressure, with housing-related and some retail names struggling in a way that suggests a mid-cycle backdrop beyond their “good as it gets” point.
The overall market is still being supported by a constant rotation of sectors and styles, a largely sideways eight-week downshift that feels more like traction than slippage, and cumulative market breadth is at a record high even as momentum has waned.
Yet, on a daily basis, leadership has been erratic and perplexing, making the standard “growth or value” debate appear simplistic and irrelevant. Value is no longer as cheap, and growth is no longer as overvalued as it was a few months ago, leaving each in a grayer zone.
Don’t forget that there are numerous other ways to break down market themes.
To almost no one’s surprise, “quality” large-cap stocks have just edged ahead of the leading momentum basket over the last year, with a far smoother ride. Quality is about fundamental corporate strength – high and stable profit margins, a strong balance sheet – and it lags in the initial burst off a major market low and earnings collapse. But we’re now 15 months past the point of no return.
Meanwhile, the iShares MSCI Momentum ETF recently rebalanced its holdings to become significantly top-heavy with value names. Financials account for more than 30% of the fund’s assets, and it is now underweight technology in comparison to the S&P 500. This is not to say that it is a bad bet, but it is very different from the common understanding of momentum.
Corporate abundance is likely to be a long-term feature of this market, with earnings at an all-time high, debt at an all-time low, and plenty of cash on hand to invest in capital, share with investors, and spend on acquisitions.
“Total shareholder yield” combines share repurchases and dividend payments, and owning stocks that rank high on this metric has worked well, both recently and over very long time periods, as demonstrated by these ETFs.
(The Cambria Shareholder Yield strategy favors smaller companies than the iShares Dividend & Buyback ETF, which may account for some of the recent performance disparity.)
The rest of the world is vying for investors’ attention as well, with major European markets finally breaking to new highs and economies elsewhere having more of their reopening impetus ahead of them than the United States. The MSCI World ex-US Index For the first time in nearly 14 years, the index has just reached a new high.
It’s true that the majority of flows this year have gone to foreign rather than domestic equity funds, but that doesn’t mean that overseas markets can’t reward these newer investors over time after being dormant for so long.
If interest rates continue to fall, it will alleviate concerns about growth and technology stocks, as well as their high valuations. And history backs up that theory, with a slew of tech names among the top low-rate performers.
Big tech names like Amazon, Microsoft, and Alphabet (parent company of Google) appeared on Best Stocks’s screen, and it appears that investors are already interested in those stocks. This week, Amazon, Microsoft, and Alphabet are all expected to gain a few percentage points.
Nvidia, a high-growth stock, is also on the list. The chip maker’s stock is up more than 30% in 2021 and has more than doubled in the last year.
Equinix, SBA Communications, and Prologis are among the real estate investment trusts on Best Stocks’s list. REITs typically perform well in low-interest-rate environments because they pay out a large portion of their revenue to shareholders in the form of dividends. Lower interest rates make those consistent payouts appear more appealing in comparison.
Other names that have performed well in previous periods of low interest rates include Lam Research, Visa, and Caesars Entertainment.