【giancarlo esposito meet and greet】5 Top Stocks to Own This February
It has been almost 30 years,giancarlo esposito meet and greet since Wall Street has performed this well in January. Both the S&P 500 and Dow advanced more than 7% last month, registering their biggest gains since January 1987 and January 1989, respectively. This is indeed an amazing recovery considering the fact that December was one of the worst months for stocks in almost 90 years.
Upbeat corporate earnings, undoubtedly, helped stocks move north so far this year. The Dow, in particular, has been aided by nearly 20% increases in The Goldman Sachs Group, Inc. GS, International Business Machines Corporation IBM and The Boeing Company BA. All these blue chips posted encouraging fourth-quarter results and provided healthy outlooks.
Tech stocks also moved up, primarily on account of solid earnings results. Needless to say, FAANG stocks like Facebook, Inc. FB and Netflix, Inc. NFLX each surged nearly 30% last month on the back of robust earnings, helping the Nasdaq gain 10% since the beginning of the year. The tech-laden index, in fact, had its best January since 2001.
Some of the other major players that topped forecasts included Amazon.com, Inc. AMZN and Alphabet Inc. GOOGL, whose shares shot up more than 8% on a year-to-date basis. Even Apple Inc. AAPL, which began the year with discouraging sales guidance sending its stocks plummeting, is now up 6% for the year following its better-than-anticipated results.
While positive earnings season should certainly provide momentum to stocks heading into February, investors were also spurred by a trio of positive news related to government shutdown, trade war and the Fed policy.
Trio of Positive News
On the political side, senators from both sides of the aisle agreed to introduce an amendment that will temporarily reopen part of the government. While it may be too early to predict when the shutdown will end completely, at least it seems lawmakers are in mood to resolve the issue. Such a positive development, no doubt, encouraged Wall Street. After all, several companies have been raising their concerns about the Washington gridlock affecting their revenues and costing them money.
Meanwhile, Treasury Secretary Steven Mnuchin recently confirmed that the United States and China have made significant progress on talks to end the ongoing trade related dispute that sparked apprehensions of global economic slowdown. Trade war could have also easily overshadowed the benefits of the large tax cuts and deregulatory efforts taken by the Trump administration.
The Fed’s latest comment that the rate increases are on a pause is of utmost significance. This dovish stance will certainly help the broader market chug along in the near term. At the conclusion of its two-day policy meeting this week, the Fed confirmed that it would be “patient” with future rate hikes and has also indicated that the unwind of the asset portfolio could conclude sooner than expected.
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Such views were widely considered as accommodative measures, at least for the time being, and have had a soothing effect on investors. After all, the Fed increasing rates last year did took a toll on them. And why not? Hike in rates increases the cost of lending money from financial institutions for small and medium business houses. This in turn could exert more pressure on the U.S. economy that is on the cusp of a slowdown this year.
5 Best Stocks to Buy in February
Courtesy of a dovish Fed, temporary end to government shutdown, optimism that U.S.-China trade deal might be on the cards and promising start to the earnings season, we are lined up for a strong February rally.
Just a word of caution! China’s factory activity, currently, is shrinking and that may stifle the rally. Consequently, it will be prudent to invest in five of the best stocks that can make the most of the largely bullish trend, and at the same time has limited exposure to the Chinese market.
These stocks, by the by, have a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Office Depot, Inc.
ODP offer office supplies in the United States, Puerto Rico, and the U.S. Virgin Islands. The Zacks Consensus Estimate for current-year earnings has moved up 3% in the past 60 days. The company’s expected earnings growth rate for the next quarter is 50%, in contrast with the industry’s projected decline of 20.3%.
Rent-A-Center, Inc
. RCII leases household durable goods to customers on a rent-to-own basis. The company own stores in the United States, Canada, and Puerto Rico. The Zacks Consensus Estimate for current-year earnings has moved up 10.8% in the past 60 days. The company’s expected earnings growth rate for the current year is 270.4%, way ahead of the industry’s growth of 16.4%.
SkyWest, Inc
. SKYW operates a regional airline in the United States. The Zacks Consensus Estimate for current-year earnings has moved up 0.6% in the past 60 days. The company’s expected earnings growth rate for the current year is 49.3%, higher than the industry’s growth of 5.8%. You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Molina Healthcare, Inc
. MOH provides Medicaid-related solutions to meet the health care needs of low-income families and individuals in the United States. The Zacks Consensus Estimate for current-year earnings has moved up 0.4% in the past 60 days. The company’s expected earnings growth rate for the current year is a whopping 1,553.6% compared with the industry’s growth of 15.9%.
Shoe Carnival, Inc
. SCVL operates as a family footwear retailer in the United States. The Zacks Consensus Estimate for current-year earnings has moved up 12% in the past 90 days. The company’s expected earnings growth rate for the current quarter is 454.6%, in contrast with industry’s projected decline of 34.1%.
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- ·5%, led by a 17% increase in average ticket and a slight decline in traffic. Growth in the quarter reflected the impact of households stocking up on essentials like paper goods and cleaning supplies as the pandemic became a nationwide concern, along with strength in discretionary categories as the quarter came to a close and stimulus dollars and tax refunds were disbursed.
As shown below, the results in the quarter materially changed the trend in two-year stacked comps for each of the banners, along with a significant acceleration for consolidated comps.
The increase in consolidated comps was the primary driver of an 8% increase in revenues to $6.3 billion. The company ended the quarter with 15,370 locations, up less than 1% year-over-year. This reflects a 7% increase in Dollar Tree units, offset by a 4% decline in Family Dollar units.
The top-line results at each banner flowed through to their respective income statements, with Dollar Tree gross margins and operating margins declining year-over-year while Family Dollar gross margins and operating margins expanded year-over-year. On a consolidated basis, gross margins contracted by 120 basis points in the quarter to 28.5%, reflective of a shift to lower-margin consumables, tariff costs and the impact of markdowns from the Easter headwinds at the Dollar Tree banner. The company saw slight operating leverage on SG&A from higher comps, with the net result being an 80 basis point contraction in operating margins to 5.8%, with operating income declining 5% to $366 million. This is not adjusted for $73 million of pandemic-related costs, such as PPE supplies.
In the first quarter, the company opened 85 stores (net of closures) and completed 220 Family Dollar renovations to the H2 format. Importantly, comps at renovated Family Dollar stores continue to outpace the chain average by more than 10%. On the call, management indicated that they plan on reducing both the number of new store openings (from 550 to 500) and the number of H2 renovations (from 1,250 to 750) in 2020.
Personally, given the fact that Family Dollar is seeing material benefits to its business from the pandemic with new or lapsed customers coming into its stores, I think the company should try to get more aggressive with its renovation plans, not less. On the other hand, you could argue that renovations cause short-term disruptions and limit their ability to fully capitalize on the business momentum they are currently experiencing.
As a result of fewer new stores and remodels, management now expects 2020 capital expenditures to total $1.0 billion compared to previous guidance of $1.2 billion. In addition, the company has temporarily suspended share repurchases. At quarter's end, the company had $1.8 billion in cash on its balance sheet compared to $4.3 billion in total debt.
Conclusion
In recent years, Dollar Tree has been a tale of two cities. While its namesake banner has generally delivered impressive financial results, Family Dollar has been a persistent underperformer. This quarter, those results flipped, and given what we've seen in the weeks since quarter's end, there's a decent possibility that we will see something similar in the coming months. As the CEO noted, the second quarter is off to a very good start at Family Dollar.
Here's the important question: how useful is that information is in terms of making future predictions about the business? Will recent success at Family Dollar translate into long-term success for the banner? The optimistic take is that new or lapsed customers, especially those visiting the renovated stores, could become recurring business for the banner. The pessimistic take is that they have experienced short-term success out of necessity as people went to any store that was open to try and find essentials like toilet paper and hand sanitizer that were largely out of stock throughout the retail landscape. From that view, many of these customers could abandon the retailer when life returns to normal. As Philbin noted on the conference call, early on [during the pandemic], folks needed us. Will people still shop as much at Family Dollar when it's no longer a necessity?
Personally, I do not place too much weight on the recent results. I will need to see incremental data points that indicate that Family Dollar has truly won sustained business from these new customers. While I still believe that the Dollar Tree banner is a well-positioned retailer with attractive unit returns, I'm not yet willing to say the same thing for Family Dollar. For that reason, along with the recent run-up in the stock price, I plan on staying on the sidelines for now.
Disclosure: None
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