Okay, so the market is shrugging off some really strong earnings results.
We want to see the usual response to strong earnings, but that doesn’t seem to be forthcoming.
On the other hand, the Fed remains supportive and inflation remains a slight positive for the market, although it could be pinching our pockets.
The big question is, should we be concerned about what’s going on? Should we stay away from the market?
Obviously, for growth investors, you’re ready to take some risk, but you’re looking for outsized returns. Otherwise, it doesn’t make sense.
And if you’re a value investor, you certainly don’t want to get into stocks that are basically just benefiting from the base effect (pandemic-related softness last year) to generate strong growth. You’re looking for companies with real prospects that are going cheap because they may have been overlooked by investors.
The reason the question of growth or value is a bit complicated right now is the supply chain. For one reason or other, a large number of industries are seeing very strong demand that they’re unable to cater to because there are certain supply constraints. And more importantly, we don’t really know when the situation is going to improve although we have hints that it is improving. This uncertainty is keeping investors on the sidelines. Which is understandable.
But you’ve got to remember that despite these uncertainties, companies are overwhelmingly reporting revenue and earnings beats and also providing strong guidance. And resultantly, earnings estimates are moving up.
Also, U.S. GDP for the second quarter has moved beyond pre-pandemic levels.
This means that we are on a positive trajectory for real earnings growth. But because investors are incrementally cautious, valuations on many stocks are not high. Which makes it a good time to buy.
With that in mind, I’ve picked 5 stocks that you may want to consider, irrespective of whether you are essentially a value or a growth investor. Because these stocks have things going for them although they could be temporarily boxed in by the inventory situation.
Two of these are auto dealers that I’ve recommended before as well. This industry has successfully raised prices on its limited inventories, impacted as they’ve been by the chip shortage. So, in the near term, they’re benefiting from higher prices. And in the longer term, we’re now hearing that the chip situation continues to improve, although some constraints may persist into the middle of 2022. That means the supply constraints will gradually alleviate, driving up inventories. So this is a nice place to be in, if the valuation permits. And the Zacks industry rank reflects the prospects: the industry is at the top 2% of Zacks-ranked industries.
First up is Asbury (NYSE:ABG) Automotive Group, Inc. ABG, which has a Value Score A, a Growth Score C (we know where that’s coming from) and a Momentum Score B for a net VGM Score of A.
The Zacks Rank #1 (Strong Buy) company’s June quarter earnings topped the Zacks Consensus Estimate by 47%. Estimates have been steadily trending up over the last three months. And since it reported, the 2021 and 2022 estimates are up 62 cents and 69 cents, respectively.
As far as valuation is concerned, the shares are trading at a forward P/E of 8.9X and P/S of 0.4X. The P/E is really low compared to the average of around 16X in our universe, as well as the 23.2X for the S&P 500. And a P/S valuation that’s under 1 is always cheap, because the share price is undervaluing the company’s sales.
And then we have AutoNation (NYSE:AN), Inc. AN, which also has the same #1 rank, but gets an A for Value, Growth as well as Momentum.
After beating June quarter estimates by 70%, the company’s 2021 and 2022 earnings estimates rose 33% and 24%. This just isn’t possible without notable improvement in prospects.
And then again, the valuation still looks very decent at 8.9X P/E and 0.4X P/S.
The Steel – Speciality industry is in the top 2% of Zacks-classified industries, and for good reason. Steel is a necessary component of all kinds of infrastructure, whether its public transport systems, vehicles, tools, implements, machinery, or home construction and white goods (and a host of other things). So naturally, this market is really hot at the moment.
And what could be a better choice than Voestalpine AG VLPNY, which has exposure to many of these segments. So this stock has a Zacks Rank #1 with Value and Growth Scores of A.
We don’t have estimates for the historical period, so there’s no surprise history. But we can see that the 2022 and 2023 (fiscal year ending March) estimates have moved up over the past month by 13% and 23%, respectively.
Additionally, the shares are valued at 7.6X P/E and 0.6X sales (really cheap).
The Leisure and Recreation Products industry (top 12%) is of course very attractive at this time because of the great reopening and the fact that consumers have available cash.
Lazydays Holdings LAZY offers some of the RVs and on-site campgrounds that people will be looking for. With both Value and Growth Scores of A, this #1 ranked stock looks set to grow strongly this year.
The company will report its June quarter earnings next week. From the numbers available, I’m seeing a 20% increase in the 2021 estimate over the past month. The 2022 estimate is up 32%.
What’s more, the shares are currently trading at 9.5X P/E and 0.3X sales, which means it’s a good time to jump in.
One of my favorite industries in the current environment is Transportation – Truck (ranked in the top 15% by Zacks). That’s because all the strength in demand ultimately represents loads to be delivered to the manufacturer or consumer, whether the transaction is completed online or otherwise. And trucks take time to manufacture and deliver, especially in an environment where we don’t have enough chips. And when they’re delivered, there’s a question of hiring and retaining drivers. What this boils down to is limited capacity and therefore, higher rates. Which can only be a good thing for this group.
I’ve picked #1 ranked Covenant Logistics Group, Inc. CVLG today, mainly because of its value (VGM Score A) although growth should also ultimately become a factor (Growth Score C).
After beating June quarter earnings estimates by 50%, the 2021 and 2022 estimates moved up a respective 22% and 15%.
However, valuation remains cheap at a P/E of just 6.6X and a P/S of 0.4X.
One-Month Price Performance
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AutoNation, Inc. (AN): Free Stock Analysis Report
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