A combination of factors – including the recent election, a growing ‘new wave’ of coronavirus cases, and the prospect of COVID vaccines on the market before year’s end – are buffeting the markets in recent weeks. The major impact, for now, appears to be the vaccine news. Pharma giants Pfizer and Moderna have both announced successful trials, with Pfizer’s vaccine showing 90% effectiveness and Moderna’s 94%.
The vaccine announcements are important, for public health but also for the economy. Numerous states are preparing new lockdown regimes which are certain to stifle economic activity – but a vaccine release will give state governors and legislators support in reopening. Even the announcement that such vaccines are showing success in late-stage trials was enough to boost stocks; the actual release for public distribution is sure to have a greater effect.
Wall Street’s analysts have been busy in recent weeks and days, scanning the market for stocks that are likely gainers in the weeks ahead. They are tagging plenty of choices, but some stocks stand out. These are the ones with ‘Perfect 10’ from the Smart Score.
The Smart Score is a unique tool that uses an array of 6 separate factors, each of which is known to correlate with future overperformance. The Smart Score gives investments a single-digit rating, letting investors know at a glance where the stock is likely going – according to quantifiable data.
Here, we look at three stocks that score a Perfect 10. Let’s find out what lies behind this rating.
Hanesbrands (HBI)
Hanesbrands Inc (NYSE:HBI) is undoubtedly one you are familiar with. Hanes is a clothing manufacturer, specializing in undergarments, whose brands includes Hanes, Playtex, L’eggs, Champion, and plenty more. The company’s garments are somewhat ubiquitous, reflecting their necessity, and these modest products brought in over $7 billion in revenue last year.
This year, Hanes, like much of the retail world, took a hit in the first quarter when the corona pandemic forced a general economic shutdown. But the company quickly rebounded, and the Q3 revenues, at $1.81 billion, were the highest of the last four quarters. Earnings show a more mixed picture; Q2 EPS came in at an excellent 60 cents, while Q3 showed a 30% drop to 42 cents. That drop, however, still left the Q3 earnings in line with previous years’ results.
The earnings report, with its combination of beating the estimate while falling year-over-year, pushed the stock down in recent sessions. Even so, HBI has clearly recovered its value since hitting bottom in the ‘corona recession.’ The stock is up ~90% from its low point this year. Adding to the attraction, Hanes has kept up its regular stock dividend, maintaining the payout at 15 cents per common share, for all of 2020. That dividend is now yielding an above-average 4.6%.
On the insider front, two transactions, both by Ronal Nelson of the Board of Directors, have swung the sentiment needle on Hanes well into positive territory. In the last five days, Nelson has purchased over $1 million worth of shares, in two tranches, one of 50,000 shares and the other of 30,000.
Covering Hanesbrands for Raymond James, analyst Matthew McClintock notes the company’s strong current position.
“We believe that HBI’s 3Q20 results signal a continuation of market share gains in its core categories driven by the company’s inherent competitive advantages of scale, strong brands, and in-house supply chain,” the 5-star analyst noted.
In addition, McClintock believes the company demonstrates its ability to adapt to the coronavirus scene: “HBI’s protective garment businesses is expected to slow meaningfully going forward. This recently developed business line to help fight the pandemic generated $179 million in revenues during 3Q20 (reflecting 10% of revenues) — surpassing HBI’s previous 2H20 outlook of $150 million.”
McClintock rates HBI a Strong Buy, and his $16 price target suggests it has a 22% upside from current levels.
Other analysts are on the same page. With 4 Buys and 1 Hold received in the last three months, the word on the Street is that HBI is a Strong Buy. (See HBI stock analysis)
GDS Holdings, Ltd. (GDS)
First up is GDS Holdings (NASDAQ:GDS), a data center holding firm from China. The Asian country is rapidly becoming a world high tech hub, and GDS operates high performance, cloud-neutral, data centers. Neutrality is a vital feature, as it allows GDS’ customers to access telecom networks in the PRC and around the globe. The company’s customer base is primarily composed of cloud service providers, financial institutions, information tech providers, internet companies, and telecom carriers in the Chinese market.
The value of the Chinese market is clear form GDS’ rising share value and revenues. At the top line, GDS’ revenues have grown steadily this year, with the third quarter showing a 43% year-over-year increase. The gain was driven by a similar increase in the total leased area of data centers, to more than 357K square meters of floor space. The company has another 135K square meters under construction. Subsequently, the stock has shown appreciation this year, growing 72%.
Covering the stock for Raymond James, analyst Frank Louthan notes, “GDS continues to show strength in its market and remains our best long-term idea in the space. With the highest organic growth in the sector over the next 2 years, we expect it to continue to command a premium valuation.”
Louthan rates GDS a Strong Buy along with a $110 price target. This figure suggests room for ~24% growth on the one-year horizon.
With 6 recent Buy reviews, the Strong Buy analyst consensus on GDS is unanimous. The stock is selling for $88.92 and has an average price target of $107.80. (See GDS stock analysis)
Americold Realty (COLD)
Americold Realty (NYSE:COLD) is a real estate investment trust, a REIT, and a unique one at that. The company specializes in acquiring, owning, and operating cold-storage warehouses. These make up a vital link in distribution chains for perishable products, especially food, and Americold has over 1 billion cubic feet of refrigerated storage space in its portfolio, in the US and Canada, Australia and New Zealand, and in Argentina.
COVID or no COVID, people have to eat, and food distributors have to move and store their products. For Americold, this has meant stable revenues through a year otherwise noted for high volatility. The company’s top line has held between $482 million and $497 million through the past four quarters, with the high and low values both coming during 1H20 – and that high value was recorded in the recent Q3 report.
As a REIT, Americold is required to return profits to shareholders, and like most of its peers, it uses the dividend to do that. The company raised its dividend in March of this year, at the height of the coronavirus crisis, and has held to the higher payment since. At 84 cents per common share annualized, the dividend yields 2.3%.
Analyst Michael Carroll, from RBC Capital, has only warm words for Americold.
“We are particularly encouraged by the new investments that expand COLD’s footprint, build scale in key markets, and grow existing / add new customer relationships. We believe these strategic deals better position the company to execute on its operational strategy and deliver ~10% earnings growth for the foreseeable future,” Carroll noted.
To this end, Carroll rates Americold shares an Outperform (i.e. Overweight) along with a $43 price target. Investors could be pocketing a gain of 22%, should this target be met in the months ahead.
All in all, Americold gets a unanimous thumbs up from the analyst consensus, with 3 recent Buy reviews adding up to a Strong Buy rating. The stock is priced at $35.20, while the average price target of $42.67 is in line with Carroll’s. (See COLD stock analysis)
To find more ideas for stocks trading at attractive valuations, visit Investing Insights.