The last few months have been admittedly rough for some of the biggest consumer names on Wall Street — and some of those stocks likely dragged down your portfolio.
Packaged foods giant Conagra Brands
has plunged about 40% in the last 90 days, while retailer Macy’s
has plummeted 25% and consumer tech darling Apple
has slumped 20% in the same period. It’s small wonder why, as consumer sentiment is at a two-year low thanks in part to the record-long government shutdown and shoppers just aren’t as eager to open their wallets.
But while the stock market certainly been choppy as of late, there are plenty of named that have hung in there. After all, the S&P 500 index
is basically flat over 90 days. That’s hardly a sign to panic and give up on equities.
It may sound like an old platitude, but many investors are forgetting that they are looking for opportunities in a market of stocks and not just a stock market. The fact is that amid serious problems for some consumer stocks, there are a few picks that have put up very strong returns in the last few months — and based on current sentiment should continue to defy gravity.
Here are five names to watch:
While the last few years have been full of drama for investors in Chipotle Mexican Grill
we started to see signs of a turnaround in late 2018 — and an impressive run across December thanks to a dramatic snapback shows that investors are not giving up on this fast-casual restaurant even amid consumer uncertainty.
One big reason, of course, has been the improving fundamentals. Revenue is expected to have grown 8% in fiscal 2018 when the company posts year-end results in the first week of February, and earnings are projected to jump an impressive 29%.
Looking forward, CEO Brian Niccol, who joined from Taco Bell in March, has done an excellent job taking this stock into the 21st century with a digital sales plan that looks a lot like what companies like Panera Bread and Starbucks
have done to unlock significant sales via mobile devices instead of in-store orders. That is a big trend to watch in 2019.
Admittedly, the stock is still a bit rich with a forward price-to-earnings ratio above 30. However, revenue and profit are improving nicely to justify that premium, and with the stock up more than double from its early 2018 lows and setting new 52-week highs, momentum is certainly on its side right now.
Alright, hear me out! I know that General Motors
is facing some serious headwinds that include a secular decline in vehicle sales in the age of Uber and Lyft as well as a high-stakes race for autonomous capabilities and electric-vehicle technology that demands big-time investment now for little tangible results in the short term.
However, it would be foolish to count GM out just because you think it’s a stodgy old car company. There’s a lot to be said for a reliable business even if there’s not impressive growth, particularly in times of trouble.
And make no mistake, GM is indeed a quality business. For starters, it offers a 4% dividend yield that is pretty bulletproof at just 24% of next year’s expected earnings. It boasts over $17 billion in net operating cash flow and has more than $25 billion in cash and short-term investments on its balance sheet. While growth is admittedly challenged, it is trading for a paltry 6 times forward earnings.
Wall Street remains incredibly negative on this stock. However, remember that GM shattered third-quarter expectations with an impressive earnings beat that sent shares soaring 9% in a single session.
There are other more growthy names on Wall Street, and indeed more growthy names on this list. However, if you’re looking for a stock that will hang tough amid consumer pressures, give GM a look. Shares are up 20% from their October lows and look to be in a nice uptrend right now.
Discount merchant Dollar Tree
got a bit ahead of itself in late 2017, and shares are admittedly still off about 18% from those highs. But remember, part of those pressures came from a general feeling that consumers were doing great and that pinching pennies wasn’t as important anymore.
Things have changed a lot in 2019, and not just in regard to the consumer outlook. For starters, the company’s earnings are projected to grow more than 12% in FY2019. And most importantly, hedge fund Starboard has built up a significant stake in the retailer and is urging the sale of its Family Dollar unit that has never been efficiently integrated in the wake of a 2015 merger, and has only recently gotten the attention it deserves. Some think a sale would be hasty, but one way or another the stake of Starboard is going to light a fire under management.
Yes, the trade war still hangs over Dollar Tree, as the company gets a lot of its cheap items from China and faces lower margins thanks to tariffs. But that negativity has been priced in, and with the Democrats in control of the House it’s highly unlikely that things get worse on the trade front and very likely they will improve in 2019. Shares have been in a nice uptrend since their September lows and one fund manager recently plotted 50% upside for the stock thanks to consumer trends and an attractive valuation.
Some investors may scoff at Crocs
as the purveyor of ugly footwear for kids. But those folks would grossly misunderstand what the company is now vs. what it was a decade ago. Crocs sells boots, sandals and a host of other footwear beyond its iconic clogs, and has made big inroads into work shoes for professions like nursing and food service where employees are on their feet all day and need something that is both comfortable and easy to clean.
The fundamentals show this strategy is working and that the Crocs brand is still popular. The company is expected to post 6% revenue growth in FY2018, with another 5% projected in 2019. Furthermore, the company is seeing a significant increase in profitability, as full-year earnings are expected to hit 37 cents per share in 2018, more than double the 16 cents in FY2017, and then almost triple in 2019 to $1.07 a share.
No wonder investors eagerly bought this pick last year, leading to a return of more than 100% in the stock. And perhaps most impressively, that gain was mostly slow and steady, with few significant rollbacks. The strong momentum in an otherwise choppy market is proof positive that Wall Street is a believer in this stock, and the consumer name is still worth a look in 2019.
In contrast to Crocs, social media company Snap
had a simply awful 2018, with shares skidding more than 50%. There were several factors, including a decline in user growth thanks to competition from Facebook
property Instagram and the inevitable deceleration in revenue growth that follows both those short-term trends and the maturing of any high-growth tech stock.
But 2019 should be much better, and not the least of the reasons why is that it can’t get much worse. The company is focused on international user growth through an improved Android app, and it continues to connect with advertisers even if revenue growth has slowed. After all, this is a company that saw its top line surge more than 40% in 2018 and is expected to book more than 30% growth again in FY2019.
We’ve seen this movie before with overhyped IPOs, where unrealistic expectations result in a punishing first year for a corporation that in many ways is unprepared for the scrutiny of public markets. But Snap’s fall from grace is now old news. As it begins its third year as a listed company, it’s now time to focus on the “new normal” instead of the old hype and growing pains.
Though unprofitable still, shares are a bargain at around $6 apiece. Negativity is very much priced in, growth is still happening and the big potential of this mobile-native platform is still worth remembering.