One thing that every investor learns with time is that there’s no need to do anything original. Most phenomena that allow us to make money in the market have already happened before. While specifics might differ, by and large, the way stocks and stock markets react to different events does not change.
You can’t, for instance, tell what will happen when a pandemic hits. But you can tell what’s likely to happen when auto supply falls short of demand. Or when supply chains are constrained. Or when certain chips are in short supply. So when something new happens, it is studied by breaking it down into its components. And then you understand what those components are, you can rely on historical data and trends to take calculated decisions about where to put your money.
And one group that has a ton of that data and has been studying trends forever are brokers. Another group that has been studying broker recommendations and estimates are companies like Zacks. So when they tell you to buy or sell anything, these are studied recommendations. And more likely than not, they are likely to be accurate.
So today, I’ve put together a list of stocks that brokers like and Zacks recommends. I usually like value stocks more because the buy and hold strategy kind of agrees with me.
But for today, I’ve focused on growth stocks with momentum, because that’s the group that can get you some quick gains. And since analysts seem to like them too (I’ve only considered stocks with at least three analyst estimates), they’re likely to be less risky.
National Vision Holdings, Inc. EYE
National Vision Holdings is one America’s rapidly growing optical retailers focused on the value segment. With over a thousand retail stores and 19 consumer websites, it provides budget-friendly eye exams, eyeglasses and contact lenses to low-income consumers and aims at making eye care and eyewear reasonable for all Americans.
The pandemic had a devastating impact on the company’s revenues, with the decline in the June 2020 quarter pulling down results for the whole year. But the company bounced back in the very next quarter and has not looked back since.
The shares carry a Zacks Rank #1 (Strong Buy), Growth Score of A and Momentum Score of A. Their average broker rating is 1.50.
The estimate revision trend looks encouraging with the average estimate (Zacks Consensus Estimate) for the current year up 20.7% in the last four weeks. The average estimate for the following year is up 18.7% in the same period. Earnings are currently expected to grow 19.8% in 2021 and 8.9% in 2022.
Since the company was severely impacted by the pandemic, a price to earnings valuation doesn’t make a lot of sense. On a price to sales basis, the stock is trading at a discount to the S&P 500 and at its own median level over the past year. Since it is also trading at 87.1% of its 52-week range, upside potential definitely exists.
Ferguson plc FERG
Formerly known as Wolseley plc, Zug, Switzerland-based Ferguson plc is a distributor of plumbing and heating products to professional contractors and consumers primarily in the USA, UK, the Nordic region, Canada and Central Europe.
FERG was also impacted by the pandemic, which is why its revenues for fiscal 2021 (ending July) have suffered a big blow while cost management enabled flattish earnings growth. But the company has been growing strongly since 2017 and is expected to come back strongly in the following year.
The Zacks Rank #2 (Buy) stock has a Growth Score of A and Momentum Score of B. The average broker rating on the shares is 1.50.
The stock looks attractive particularly because of the estimate revision trend. The Zacks Consensus Estimate for the current year and 2022 are up 12.5% and 12.7%, respectively in the last 4 weeks. Earnings are currently expected to be flat this year and grow 6.6% in 2022.
FERG’s price to sales multiple trails the S&P 500 and remains well below its own high point over the past year. So although it is currently trading at its 52-week highs, there seems to be potential for further upside.
Guess, Inc. GES
LA-based Guess designs, markets, distributes and licenses casual apparel and accessories for men, women and children as per the American lifestyle and European fashion sensibilities. The company’s collection includes contemporary apparel, denim, handbags, eyewear, watches, footwear and other related consumer products.
Products are sold through 1,046 owned or licensed retail stores, which are in six formats, namely the flagship Guess-Full-price retail stores, Guess-factory outlet stores, Guess by Marciano stores, G by Guess stores, Guess Accessories Stores and Guess Kids Stores. It also sells through wholesale and e-commerce.
The Zacks Rank #1 stock has a Growth Score of A and a Momentum Score of A. Its average broker rating is 1.67.
Earnings estimates for the current year are up a very strong 50.2% in the last 4 weeks while estimates for the following year are up 31.9%. Earnings are expected to go from a loss of 7 cents to earnings of $2.38 in the current year. In the following year, they are expected to grow 14.6%.
On a P/S basis, the shares are trading between their annual high and median value. This remains a significant discount to the S&P 500. Given the company’s growth potential and the fact that the shares are currently trading at 89.2% of their 52-week range, upside potential exists.
Intuit Inc. INTU
Headquartered in Mountain View, CA, Intuit is a business and financial software company that develops and sells financial, accounting and tax preparation software and related services for small businesses, consumers and accounting professionals globally. The company has offices in the United States, Canada, India, the United Kingdom, Singapore, Australia and elsewhere.
The Zacks Rank #2 stock has a Growth Score of A and a Momentum Score of B. Its average broker rating is 1.50.
In the last 4 weeks, its current year (ending July) estimate is up 12.0% while the 2022 estimate for 2022 is up 10.6%. Since INTU wasn’t adversely impacted by the pandemic, it is seeing a steady growth trend. In the current year, earnings are expected to grow 19.0% while in the following year, they are expected to grow 15.9%.
The stock looks grossly overvalued with respect to the S&P 500 and it is also trading at its 52-week high. However, its P/E multiple is below the median level over the past year, indicating upside potential.
LouisianaPacific Corp. LPX
Louisiana-Pacific is a leading manufacturer of sustainable, quality engineered wood building materials, structural framing products as well as exterior siding for use in residential, industrial and light commercial construction. Currently, the company operates 20 modern, strategically located facilities in the United States and Canada, two facilities in Chile and one in Brazil. It also operates facilities through a joint venture. The company’s products are used primarily in new home construction, repair as well as remodeling and outdoor structures.
Given the conditions of shortage in the wood industry, players are seeing robust pricing that is leading to unexpected growth this year. However, as supply normalizes through the year, the strong growth rates will come down.
As a result, there may be declines in 2022. If the absolute earnings in 2022 remain above 2020 levels, it should still be considered a good deal. At any rate, the strong growth trends should continue through this year, which is what we’re concerned about for the purposes of this trading strategy.
The Zacks Rank #1 stock has Value, Growth and Momentum Scores of A. Its average broker rating is 2.00.
In the last four weeks, the current year estimate increased 19.6% while the estimate for 2022 increased 18.5%. Earnings are expected to grow 187.2% this year. 2022 earnings are currently expected to decline 51.3%, but at $6.03, they are expected to be well above the 2020 earnings of $4.31.
The shares are trading well below their own median level over the past year (on a P/E basis) and at a significant discount to the S&P 500. Additionally, the current price is at 80.3% of their 52-week range. So there is strong potential for upside.
Ulta Beauty Inc. ULTA
Bolingbrook, IL-based, Ulta Beauty, previously known as Ulta Salon, Cosmetics & Fragrance, Inc., is a leading beauty retailer in the United States. The company offers a wide range of products including cosmetics, fragrance, skincare, hair care, bath and body products and salon styling tools in stores. It sells more than 25,000 products from about 500 well-established and emerging beauty brands across all categories and price points.
The skincare category has been doing particularly well of late. Ulta Beauty ended the first quarter of fiscal 2021 with 1,290 stores. For fiscal 2021, the company plans to open approximately 40 stores and remodel/relocate 19 others.
The Zacks Rank #1 stock has a Growth Score of A and a Momentum Score A. Its average broker rating is 1.73.
In the last 4 weeks, its current year earnings estimate moved up 25.1% while the 2022 estimate increased 15.1%.Earnings are expected to grow 157.9% this year and 14.2% in the next.
Although at a premium to the S&P 500, the shares are trading slightly below their median level over the past year on a P/E basis. There are also at 96.1% of their 52-week range, indicating upside potential.
One-Month Price Performance
Image Source: Zacks Investment Research
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