Stocks rebounded on Friday after the three major US indices fell on Thursday amid continued exuberance that pushed the market to record highs to start the third quarter. Wall Street has regained tech and other growth stocks since mid-May, when many names entered attractive buying points.
Bullish investors have proven their willingness to buy big Nasdaq players almost every time there is a large and healthy recalibration since the first post-covid wave. The pick-up in technology and growth coincides with falling bond yields.
Wall Street has pumped the breaks on overheated nerves somewhat for the time being, knocking the 10-year US Treasury down 1.75% at the end of March to around 1.30%, while the 30-year yield slipped to 1, 94% against 2.45%. That said, there are also more technical business reasons for the recent drop in yields.
Even before Treasury yields fell again, many investors figured out that the market would continue to chase after stock yields as yields are poised to stay historically low even when the Fed finally begins to raise them. . Investors also celebrated the June jobs report which showed continued signs of recovery but did not indicate massive overheating.
It is clear that Wall Street will remain vigilant on the impact of rising prices. But the market decided to stay bullish during the low volume summer months, looking to the improving and reopening of the US economy and the strong earnings picture for reassurance.
Against this background, here are two “Strong Buy” stocks that investors might want to add to their portfolios that don’t seem overheated and that are poised to profit from continued consumer spending in the United States…
Image source: Zacks Investment Research
Tempur Sealy TPX
Tempur Sealy is one of the world’s largest mattress and bedding companies, operating under the Tempur, Tempur-Pedic, Sealy and Stearns & Foster brands. TPX sells premium mattresses, pillows and more, offering everything from adjustable beds and cooling mattresses to high-tech beds that aim to reduce snoring. Overall, the company sells products that never go out of style, and many consumers are willing to pay more for better sleep.
TPX, like all retailers, has invested in its digital and direct-to-consumer business in the Amazon era AMZN to combat any encroachment from digitally-driven newcomers and bed-in-a-box businesses. Like Casper CSPR. Tempur Sealy also has its own stores and works with third party retailers such as Mattress Firm, Big Lots BIG and others. TPX’s 2020 revenue jumped more than 18% to $ 3.7 billion and surpassed the 15% expansion in fiscal 19.
Tempur Sealy benefited from increased spending related to the pandemic, but its sales also climbed 30% in the fourth quarter of fiscal 2019, well ahead of covid. More importantly, the company is poised to take advantage of the booming housing market that is finally being driven by millennials. TPX and other retailers are expected to grow as confident U.S. consumers continue to spend, many higher income earners sitting on more savings.
The company exceeded our first quarter estimates, with revenue up 27% and direct channel sales up 62%. According to Zacks’ estimates, FY21 TPX sales are expected to climb 27% from $ 3.7 billion to $ 4.7 billion, with FY 22 expected to grow another 8%. Meanwhile, his adjusted EPS is expected to increase by 48% and 14%, respectively, during this time frame.
Image source: Zacks Investment Research
Tempur Sealy’s strong earnings revisions are currently helping it to rank first among Zacks (strong buy). The company also crushed our earnings estimates recently, and six of the nine brokerage recommendations Zacks made are “strong buys”, with none under a “hold”. Tempur Sealy also pays a quarterly dividend, with a yield of 0.70% at the moment. In addition, TPX has increased its share buyback program.
Shares of TPX have climbed 120% in the past year to overtake its highly ranked retail furniture market which includes RH RH and Ethan Allen ETH. This is among the 240% executed in the past three years to almost double its peers. The stock broke again on Friday to close a few dollars below its early July highs at around $ 40 per share.
Despite its consistent outperformance, TPX is trading at 12.9X 12-month futures earnings, which is a discount from the industry average of 16.8X, its own year-round median, and a discount of 33% from its highs during this period. Tempur Sealy is also near neutral RSI levels (50) at the moment, although its share price has climbed 50% in 2021 to crush the market.
Chewy is an e-commerce pet store that went public in 2019 and has grown rapidly as consumers turn to convenience. The business sells pet food, supplies, treats, medicine and more for a variety of animals. Chewy has seen success in adding loyal pet owners to its ranks, with 70% of sales coming from its Autoship business which allows people to have food delivered and more at regular intervals.
Chewy added 43% more users in 2020 to close the year with 19.2 million and its Autoship unit is creating consistent revenue. The company, present for ten years, has broadened its offer. CHWY launched a telehealth service called Connect with a Vet last October, which it has since strengthened. The company has also strengthened its supply of pharmacies. CHWY’s expanded portfolio helps it thrive in the ecommerce world dominated by Amazon, Target TGT, and Walmart WMT.
The company exceeded our first quarter estimates in early June, with revenue and new active customers up 32%. Chewy closed the quarter with 19.8 million active customers, up 600,000 sequentially. “In addition, retention rates have remained stable as the 2020 cohort matures in its second year on our platform. From a broader perspective, over the past two years, we have grown our active customer base by 8.4 million or 75%, ”CEO Sumit Singh said during the company’s earnings call.
Image source: Zacks Investment Research
Zacks estimates predict that CHWY’s revenue for fiscal 21 will grow 26% or $ 1.8 billion to $ 9.0 billion, and is expected to add $ 1.9 billion or 21% more to sales in 2022. These estimates would follow an increase of 47% last year and revenues of 37%. expansion in FY19.
Chewy announced its first quarterly earnings in the fourth quarter, crushing our earnings estimates. The company then continued with another period of positive adjusted earnings in the first quarter. And Zacks’ estimates call for an 11% increase in its EPS for FY21, with FY22 expected to skyrocket 210% to $ 0.31 per share. CHWY’s consensus earnings estimates for FY21 and FY22 have increased since its release to help it achieve a Rank 1 of Zacks (strong buy).
On top of that, nine of Zacks’ 14 brokerage recommendations are “strong buys”. More importantly, e-commerce was booming long before the pandemic, and people using delivery, especially automated delivery for essentials like pet food, are unlikely to return even when they get back to life. normal.
Chewy shares had climbed more than 300% from their March 2020 lows to their February highs of around $ 120 per share. CHWY was then hit hard as Wall Street sold jumbo jets. Thankfully, it has risen 30% since mid-May after plunging into oversold RSI (30) territory, and the nearby chart shows it recently broke above key technical levels.
CHWY is still below RSI overbought levels and despite an additional 5% jump on Friday, it is trading nearly 30% below its all-time highs. And it’s trading close to its one-year median at 3.3 times futures sales. All of this could give Chewy a lot of lead.
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