Lowe's, Madison Square Garden Sports, Nike, Salesforce and Microsoft highlighted as Zacks Bull and Bear of the Day
For immediate publication
Chicago, IL - October 9, 2020 - Zacks Equity Research stocks of Lowe's Companies, Inc. LOW for Bull of the Day, Madison Square Garden Sports Corp. MSGS as the bear of the day. Additionally, Zacks Equity Research provides analysis of NIKE, Inc. NKE, salesforce.com, inc. CRM and Microsoft Corporation MSFT.
Here is a summary of all five stocks:
Bull of the day:
With the Covid-19 pandemic stretching beyond its 200th day and Americans staying in their homes for the most part as much as possible, there have been many winners and losers in the business world. The losers were companies that relied on face-to-face interactions for a significant portion of their revenue. Travel, leisure and entertainment have all suffered badly.
Technology and technology services like video conferencing and file sharing companies that help people work more efficiently at home were the obvious winners.
There have also been winners in the low-tech industry who suddenly find that there is increasing demand for their goods and services - and customers who haven't been spending lately on recreational activities have left them extra cash in their budget.
Have you been to a hardware store lately? With the exception of the physical formats that have been tweaked to encourage social distancing, you'll likely find that it feels like a normal store.
For a large retailer like Lowe's company, a quick look at the latest financial data confirms that it's not just business as usual, it's better than usual. All of a sudden, consumers who were confined to their homes have started a multitude of home improvement projects.
The more time you spend in your home, the more likely you are to take on the nagging little repairs that were always on your to-do list and tackle bigger projects like painting and landscaping. Contractors have their schedules filled months in the future - and they also shop in hardware stores - for plumbing, electrical, carpentry, and concrete needs.
With limited dining options, grills and other outdoor cooking appliances are walking out of the stores, along with larger appliances like refrigerators, ovens, washers, and dryers. Although unemployment is stubbornly above recent averages, most Americans remain employed. With almost no money being spent on things like plane tickets and restaurant meals, many find that they can spend extra money on improving their surroundings.
Low interest rates have kept property markets exceptionally healthy, and higher home improvement spending tends to go hand in hand with residential property transactions.
The share price
A potential downside for Lowe right now is that stocks have already seen some notable appreciation this year. During the March market panic, these stocks traded as low as $ 60 - an incredible bargain!
Even recently close to $ 170 / share, Lowes remains reasonably valued at 20x earnings estimates for 12 months. For comparison purposes, the competitor Home Depot trades with a 25-fold profit on dates.
13 recent upside changes in earnings estimates put Lowe at Zacks Rank 1 (Strong Buy), and a 1.3% annual dividend yield makes the deal even sweeter.
It might not be as sexy as some of the recent high-tech superstars, but it's hard to go wrong with a retailer who successfully converts changes in customer demand into increasingly solid profits.
Bear of the day:
It is one of the most famous sports and entertainment venues in the world. Madison Square Garden is colloquially known simply as "The Garden" and is located in the middle of Manhattan. It's the oldest stadium in the NBA and NHL, and has hosted countless music, art, and comedy events over the past 52 years. For athletes and performers, “playing in the garden” means that they have reached the top of their field. It really is an icon.
The Madison Square Garden Company does not own the building - the property itself is owned by an affiliate. *
MSGS owns the NBA's New York Knicks and the NHL's New York Rangers - two teams that play in the building and have a huge local market and devoted fans across the country buying licensed merchandise and watching television shows. They also own several smaller league franchises in sports, training centers, and even on an esports team.
* (For the sake of clarity, Madison Square Garden Entertainment (MSGE) not only owns this remarkable, gigantic physical facility that towers over two blocks of town between 7th and 8th Streets in the low 1930s, but also owns Radio City Music Hall and the Beacon Theater in Manhattan, the Chicago Theater, the Forum in Inglewood, CA, and the Wang Theater in Boston. All of these venues are currently closed. MSGE is currently a Zacks Rank 4 [sales].)
Live sporting events are a very difficult business right now. The NHL canceled the remainder of the regular season at the start of the US outbreak in March and put together a modified playoff format so they can continue to award the Stanley Cup - which was eventually won by the Tampa Bay Lightning. Most of the teams had played around 70 out of a planned regular season schedule of 82 games.
It was similar in the NBA when the regular season was canceled and an elimination tournament was held in an isolated “bubble” in Florida, with all players, coaches, staff and referees avoiding contact with the outside world during the entire process. (The Los Angeles Lakers will be looking to take home the league title tonight when they play three games to 1 on the pitch against the Miami Heat.)
While sports franchises have been able to generate at least some broadcast revenue from the shortened seasons, this is a far cry from what they're used to pulling from various sources of income during a normal season.
The real problem is the next season: 2020-2021.
It is unclear when we will meet again in public space. Under normal circumstances, the new season for professional basketball and hockey should start soon, but of course that will not happen. Even if the leagues are able to put something together, there will be a massive drop in sales for individual teams.
For MSGS - which has never made so much net profit - this is a disaster. Over the past 60 days, the Zacks consensus profit estimate has fallen from a net profit of $ 0.38 / share to a loss of $ 4.00 / share.
Estimates for 2022 are slightly better, but also very uncertain.
This type of decline earns the company a Zacks Rank 5 (Strong Sell.).
2 high-ranking stocks to buy and hold despite all the noise
Things can change quickly in Washington, as we've seen in the past 24 hours. The Tuesday afternoon sell-off followed President Trump's tweet in which he told representatives to suspend negotiations on the new stimulus plan until after the election. Stocks then rose again on Wednesday after Trump tweeted, "If I get a separate bill for stimulus checks ($ 1,200), they'll go to our great people IMMEDIATELY."
Wall Street has been calling for a second stimulus package for months. And clear, transportation, hospitality, and other sectors of the economy that continue to be affected by coronavirus-based social distancing may need more assistance as millions of people in these industries remain unemployed through no fault of their own.
However, signs of economic recovery continue. The US unemployment rate fell to 7.9% last month. 11.4 million jobs have been created since the major layoffs in March and April. The larger earnings outlook for the S&P 500 supports these positive trends.
In addition, the Wall Street Journal recently reported that "Companies in the US and Europe are buying back bonds to reduce the stacks of cash built earlier this year, signaling expectations for more stable economic times."
In the meantime, investors may be somewhat surprised by the outlook for some hotels and airlines as they are trending in the right direction - even if they are likely years away from their pre-coronavirus levels.
Fortunately, circumstances evolve and Wall Street is always forward-thinking, which is why the market is outperforming its best two-quarter stretch since 2009. And the S&P 500 has moved practically sideways for the last month after its decline in early September. The broader market proxy index is back above its 50-day moving average and well above the 200-day index that some technical traders feared could only fall a few weeks ago.
Still, volatility is likely to persist in the short term as the elections and the coronavirus are major unknowns. Traders can take advantage of the large swings and swings while investors who follow the market daily may get nervous.
However, once you have a longer term horizon you need to worry less and blocking out the noise becomes a must. The reasoning is pretty simple: the stock market has proven its ability to climb in the long run, regardless of the circumstances or the party in power.
For example, since November 1974 there have been 24 market corrections. And only five of those became bear markets, including the violent overturning of the market in February and March. Timing the market is extremely difficult and can result in investors missing out on big profits or buying high and selling low. Just think of all of the people who sold stocks in early March only to miss the quick return to new highs.
Let's also remember that the Fed decided to keep its rate near zero until at least 2023. This is likely to result in a prolonged TINA effect - there is no alternative - as Wall Street seeks returns in a return-hungry market.
With that in mind, it's time to examine two Zacks Rank 1 (Strong Buy) stocks that appear to be solid buy-and-hold candidates.
Fashion is fickle and cyclical, but there are still near-surefire bets in the broader apparel industry. Nike has been a leader in sportswear for decades and its cultural influence has never been greater on and off the field and on the pitch despite the rise of Lululemon and the resurgence of Adidas in North America.
NKE has been moving to a higher-margin direct-to-consumer model for years, which includes various dedicated shopping apps and an enormous reach via Instagram, where people can now shop directly.
Nike has also digitized its supply chain and is investing in its own stores in high-quality cities. And the company has not given up wholesaling, but has instead expanded strategic partnerships with key players in the booming online sneaker market.
Nike has had two quarters that underscore its e-commerce strengths: Digital revenue rose 75% in the fourth quarter of fiscal 20 and 82% in the first quarter (reported September 22). The company is expected to return to revenue growth this quarter, with larger profits expected in the third quarter.
Overall, it is forecast that adjusted earnings for fiscal year 21 will increase by 74% with sales up 12%. The result for fiscal year 22 should increase by a further 30% with sales up 12%. That would mark a strong return to growth after FY19 sales were down 4.4%. In fact, both sales estimates would represent Nike's best sales growth since fiscal 2012.
Nike's earnings revisions soared after its September release to hit a Zacks Rank 1 (Strong Buy). NKE is also part of an industry that ranks in the top 12% of our 250+ Zacks industries, and 19 of the 25 broker recommendations Zacks has for Nike result in a "strong buy".
NKE is up nearly 30% in 2020 to triple its industry's surge and 15% last month to rest on new highs of around $ 130 per share. Nike is up over 150% in the past three years, and its dividend yield of 0.75% matches that of the 10-year US Treasury Department. And Nike is one of the most valuable brands in the world, along with other companies that will grow in the years to come.
Salesforce's cloud-based customer relationship management services provide customers with a suite of tools and applications that enable them to do everything from sales and e-commerce to marketing and analytics. CRM's subscription-based cloud software offerings have been growing in popularity with businesses of all shapes and sizes over the past decade. And the world of pandemic forced labor emphasized the strength and importance of its business model.
Salesforce is one of the newest Dow members, and the cloud software powerhouse's share price rose after estimates were blown away in late August. CRM revenue grew 29% in the second quarter, while adjusted earnings increased 120%. Zacks estimates FY21 sales for Salesforce to grow 21.5% to $ 20.77 billion. A further increase of 17.4% or USD 3.6 billion is forecast for FY 22.
CRM's adjusted earnings for FY21 are projected to increase 25%, and earnings revisions have increased since the report to reach a Zacks Rank 1 (Strong Buy). The stock is up 60% in 2020, more than doubling the industry average. This trend has continued over the past five years. Salesforce shares rose 250% compared to 116% in the software services market.
CRM is still around 8% off its early September highs, including the nice 4% gain on Wednesday during regular trading. Salesforce is also currently trading at a slight discount to Microsoft in terms of futures, as it has for the most part over the past two years.
Salesforce helped invent the Software-as-a-Service market that will grow for years if not decades as businesses big and small now count on them to run their business. Therefore, investors should consider adding one of the largest cloud software companies in the world, which is part of a select few technology companies, to the 30-share index.
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Microsoft Corporation (MSFT): Free Stock Research Report
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