Table of Contents
For Immediate Release
Chicago, IL – October 9, 2020 – Zacks Equity Research Shares of Lowe’s Companies, Inc. LOW as the Bull of the Day, Madison Square Garden Sports Corp. MSGS asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on NIKE, Inc. NKE, salesforce.com, inc. CRM and Microsoft Corporation MSFT.
Here is a synopsis of all five stocks:
Bull of the Day:
As the Covid-19 pandemic stretches past its 200th day and Americans remain mostly in their homes as much as possible, there have been many winners and losers in the business world. The losers have been businesses that rely on in-person interactions for a significant portion of their revenues. Travel, leisure and entertainment have all suffered mightily.
Technology and technology services like video conferencing and file sharing companies that allow people to work at home more efficiently have been the obvious winners.
There have also been winners in lower-tech industries that suddenly find their goods and services in increased demand – and customers who’s lack of recent spending on recreational pursuits has left them with additional cash in their budgets.
Have you been to a home improvement store lately? With the exception of physical formats that have been tweaked to promote social distancing, you’ll probably find that it looks pretty much like business as usual.
For a huge retailer like Lowe’s Companies, a quick look at recent financials confirms that not only is it “business as usual,” in may respects, it’s better than usual. Suddenly consumers who have been confined to their homes have been embarking on a wide variety of home improvement projects.
The more time you spend in your home, the more likely you are to take on those nagging minor repairs that have been on your “to-do” list forever, as well as tackling bigger projects like painting and landscaping. Contractors have their schedules filled months into the future – and they shop at home improvement stores too – for plumbing, electrical, carpentry and concrete supplies.
With limited options for dining out, grills and other outdoor cooking equipment have been flying out of stores, along with larger appliances like refrigerators, stoves, washers and dryers. Though unemployment remains stubbornly above recent averages, most Americans do remain employed. With almost no money spent on things like airline tickets and restaurant meals, many are finding that they have extra cash to spend on improving their environments.
Low interest rates have kept the housing markets extraordinarily healthy, and increased spending on home improvement projects tends to accompany residential real estate transactions.
One possible knock on Lowe’s right now is that the shares have already seen remarkable appreciation this year. During the market panic in March, those shares traded as low as $60 – an incredible bargain!
Even at recent levels near $170/share however, Lowe’s remains quite reasonably valued at 20X forward 12-month earnings estimates. For comparison purposes, competitor Home Depot trades at 25X forward earnings.
13 recent upward earnings estimate revisions earn Lowe’s a Zacks Rank #1 (Strong Buy), and a 1.3% annual dividend yield sweetens the deal even more.
It may not be as sexy as some of the recent high-tech superstars, but it’s hard to go wrong with a retailer that’s successfully turning changes in customer demand into increasingly solid earnings.
Bear of the Day:
It’s one of the most famous sports and entertainment venues in the world. Known colloquially as simply “The Garden” and situated right in the middle of Manhattan, Madison Square Garden is the oldest stadium in both the NBA and the NHL and has also hosted countless music, arts and comedy events over the past 52 years. For athletes and performers, “playing at the Garden” is synonymous with having reached the top of their field. It’s truly iconic.
The Madison Square Garden Company doesn’t own the building – the property itself belongs to a related company.*
MSGS owns the NBA’s New York Knicks and the NHL’s New York Rangers – two teams who play in the building and have enjoyed a huge local market and loyal fans around the country who buy up licensed merchandise and watch televised broadcasts. They also own several minor league franchises in both sports, training centers and even an esports team.
*(For clarification: Madison Square Garden Entertainment (MSGE) owns not only that notable, hulking physical facility that looms over two city blocks between 7th and 8th avenue in the low 30s; it also owns Radio City Music Hall and the Beacon Theater in Manhattan, the Chicago Theater, The Forum in Inglewood, CA and Boston’s Wang Theater. All those venues are currently closed. MSGE is currently a Zacks Rank #4 [Sell].)
Live sporting events are a very tough business to be in right now. The NHL cancelled the remainder of the regular season at the beginning of the outbreak in the US in March and pulled together a modified playoff format so that they could still award the Stanley Cup – which was eventually won by the Tampa Bay Lightning. Most teams had played roughly 70 out of a planned 82-game regular season schedule.
It was a similar story in the NBA with the regular season cancelled and an elimination tournament held in an isolation “bubble” in Florida in which all players, coaches, staff and referees have been avoiding all contact with the outside world throughout the proceedings. (The Los Angeles Lakers will look to take the championship trophy home tonight when they take the court up 3 games to 1 against the Miami Heat.)
While sports franchises were able to salvage at least some broadcast revenue from the truncated seasons, it’s a far cry from what they’re accustomed to pulling in from a diverse set of revenue sources during a normal season.
The real concern is next season: 2020-2021.
It’s anyone’s guess when we’ll be gathering once again in public spaces. Under normal circumstances, the new seasons for professional basketball and hockey should be underway soon, but obviously that’s not going to happen. Even if the leagues are able to cobble together something, there will be a massive revenue hit for individual teams.
For MSGS – which has never made all that much in net profits – that’s a disaster. Over the past 60 days, the Zacks Consensus Earnings Estimate has fallen from a net profit of $0.38/share to a loss of $4.00/share.
2022 estimates are a bit better, but also highly uncertain.
That kind of decline earns the company a Zacks Rank #5 (Strong Sell.)
2 Highly-Ranked Stocks to Buy and Hold Despite All the Noise
Things can change rapidly in Washington, as we have seen in the last 24 hours. Tuesday afternoon’s selloff followed President Trump’s tweet that said he told representatives to stop negotiations on the new stimulus bill until after the election. Stocks then surged back Wednesday after Trump tweeted “If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY.”
Wall Street has been clamoring for a second stimulus bill for months. And clearly, transportation, hospitality, and other areas of the economy that continue to be thrashed by coronavirus-based social distancing might need more support, while millions of people in those industries remain out of work through no fault of their own.
That said, signs of an economic recovery continue to roll in. The U.S. unemployment rate fell to 7.9% last month, with 11.4 million jobs added since the major layoffs in March and April. And the larger S&P 500 earnings outlook supports these positive trends.
On top of that, the Wall Street Journal recently reported that “companies in the U.S. and Europe are buying back bonds to reduce the cash piles they built up earlier this year, signaling expectations for more stable economic times ahead.”
Meanwhile, investors might be somewhat happily surprised by the outlook for some hotel and airlines, as they are trending in the right direction—even though they are likely years away from reaching their pre-coronavirus levels.
Luckily, expectations evolve based on circumstances and Wall Street is always forward looking, which is why the market is coming off its best two-quarter stretch since 2009. And the S&P 500 has moved practically sideways over the last month, after its early September drop. The proxy index for the broader market is trading above its 50-day moving average again and it’s well on top of the 200-day that some technical traders feared it could fall to only a few weeks ago.
Nonetheless, volatility is likely to remain in the near-term as the election and the coronavirus present major unknowns. Traders can benefit from the big swings up and down, while investors who track the market daily might get nervous.
But if you have a longer-term horizon there is less need to worry, and blocking out the noise becomes a must. The reasoning is pretty simple: the stock market has proven its ability to climb over the long-haul no matter the circumstances or what party is in power.
For instance, there have been 24 market corrections since November 1974. And only five of them turned into bear markets, including the violent tumble the market experienced in February and March. And timing the market is extremely difficult, and can cause investors to miss out on big gains, or buy high and sell low. Just think of all the people that sold stocks in early March, only to miss the quick return to new highs.
Let’s also remember that the Fed has decided to keep its interest rate pinned near zero through at least 2023. This likely creates a prolonged TINA effect—there is no alternative—as Wall Street hunts for returns in a yield-starved market.
With this in mind, it’s time to explore 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 close to surefire bets within the broader apparel industry. Nike has been at the forefront of athletic wear for decades and its cultural influence has never been bigger on and off the field and court, despite the rise of Lululemon and the resurgence of Adidas in North America.
NKE has for years been transitioning to a higher-margin direct-to-consumer model, which includes various dedicated shopping apps and a massive reach across Instagram, where people can now shop directly.
Nike has also digitalized its supply chain and it’s investing in its own stores in high-value cities. And the company hasn’t forsaken wholesale, instead it has beefed up strategic partnerships with key players in the booming online sneaker market.
Nike is coming off two quarters that highlight its e-commerce strength, with digital sales up 75% in Q4 FY20 and 82% in Q1 (reported on Sept. 22). The firm is projected to return to top-line growth this quarter, with bigger gains expected in Q3.
Overall, its adjusted FY21 earnings are projected to soar 74% on 12% stronger revenue, with its FY22 earnings expected to come in another 30% higher on 12% better sales. This would mark a strong return to growth after FY19’s sales dipped 4.4%. In fact, both revenue estimates would represent Nike’s best top-line growth since fiscal 2012.
Nike’s earnings revisions surged higher following its September release to help it land a Zacks Rank #1 (Strong Buy) at the moment. NKE is also part of an industry that rests in the top 12% of our over 250 Zacks industries, and 19 of the 25 brokerage recommendations Zacks has for Nike come in at a “Strong Buy.”
NKE is up nearly 30% in 2020 to triple its industry’s climb and 15% in the last month to rest at new highs at around $130 per share. Nike has climbed over 150% in the past three years and its 0.75% dividend yield matches the 10-year U.S. Treasury. And Nike is one of the world’s most valuable brands, alongside other companies that look poised to grow for years to come.
Salesforce’s cloud-based customer relationship management services offer clients a range of tools and applications to help run everything from sales and e-commerce to marketing and analytics. CRM’s subscription-based cloud software offerings were already becoming widely popular with businesses of all shapes and sizes over the last decade-plus. And the pandemic-forced work-remote world highlighted the strength and importance of its business model.
Salesforce is one of the newest Dow members, and the cloud software powerhouse saw its stock price soar after it blew away estimates in late August. CRM’s Q2 revenue climbed 29%, while its adjusted earnings soared 120%. Peeking ahead, Zacks estimates call for Salesforce’s FY21 revenue to climb 21.5% to $20.77 billion, with FY22 projected to come in another 17.4% or $3.6 billion higher.
CRM’s adjusted FY21 earnings are expected to jump 25%, and its earnings revisions have climbed since its report to help it land a Zacks Rank #1 (Strong Buy). The stock is up 60% in 2020 to more than double its industry’s average. This trend continued over the last five years, with Salesforce shares up 250% vs. the Software-Services Market’s 116%.
CRM still rests roughly 8% off its early September highs, including Wednesday’s nice 4% gain during regular trading. Salesforce also currently trades at a slight discount against Microsoft in terms of forward sales, as it has for much of the last two years.
Salesforce helped invent the Software-as-a-Service market that is set to grow for years, if not decades to come because companies big and small now count on them to help run their operations. Therefore, investors might want to consider adding one of the biggest cloud software firms in the world that’s part of a select few tech companies in the 30-stock index.
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