The Nasdaq fell nearly 2% on Tuesday, as Wall Street sold technology stocks from Apple and Nvidia to smaller growth stocks. The downturn comes after Wall Street largely shrugged off impressive first quarter results last week.
Investors also reacted negatively to Treasury Secretary Janet Yellen’s comments that the Fed may have to raise rates if Biden’s spending plans go forward. Yellen later clarified that she doesn’t think there’s going to be an inflationary problem.
Tuesday’s pullback has the Nasdaq trading about 4% below its recent records. And the recent downturn highlights a combination of high expectations, an impressive run, and the possibility of tech deceleration ahead (also read: Are Big Tech's Best Growth Days Behind It).
The technology titans remain safe long-term bets. Yet, given their outsized climbs off the coronavirus lows and the possibility of a sustained economic boom for the next several years, now might be time to consider stocks set to benefit from consumer spending.
Last week, the Commerce Department said U.S. GDP jumped by a seasonally adjusted annual rate of 6.4% in the first quarter, to put the economy within 1% of its pre-pandemic levels. And the latest round of stimulus checks helped propel a 4.2% month-over-month jump in spending in March, for the biggest climb since last summer.
As more states and cities reopen and the U.S. vaccine effort continues, investors might want to capitalize on pent-up consumer spending. Here are two highly-ranked Zacks stocks that fit the bill…
Columbia Sportswear COLM
Columbia was founded in the late 1930s and has remained at the forefront of outdoor clothing, apparel, and footwear ever since. The Portland, Oregon-headquarter firm currently owns four total brands: Mountain Hardwear, Sorel, prAna, and its namesake. Columbia is still by far the largest contributor, bringing in around 80% to 85% of total sales in most quarters.
The outdoor apparel firm took a hit during the coronavirus on the back of store closures and a temporary change in shopping habits as consumers flocked to the likes of Target TGT and cut back on some spending. Columbia’s fiscal 2020 revenue fell roughly 18% to $2.5 billion, which ended a nearly decade-long run of YoY top-line growth. Luckily, things started to turn around in the second half of last year.
Most recently, COLM topped our Q1 FY21 estimates on April 29, with sales up 10% and its adjusted earning up from break-even a year ago to $0.84, which crushed our projection by 155%. The company also raised its 2021 guidance. Analysts have since lifted their bottom-line estimates to help Columbia land a Zacks Rank #1 (Strong Buy) right now, alongside “A” grades for Growth and Momentum in our Style Scores system.
Looking ahead, Zacks estimates call for Columbia’s FY21 sales to jump 21% to reach $3.01 billion, with FY22 projected to climb another 9% to $3.30 billion and put it above FY19’s 3.04 billion. Meanwhile, its adjusted earnings are projected to jump by 165% and 18%, respectively over this stretch.
Along with its growth outlook, the company’s dividend yield sits at around 1% and it repurchased over $11 million worth of stock last quarter to help return value to investors. COLM shares have now climbed 24% in 2021 to crush the highly-ranked Apparel industry’s 4%. And Columbia has slightly outpaced its industry over the past five years, up around 100%.
COLM closed regular trading Tuesday down about 6% from its recent records at $108.34 a share. Despite its solid run and outperformance, Columbia trades in-line with its own year-long median at 24.7X forward earnings, which represents a discount to its industry’s 31X.
COLM also sits below neutral RSI levels (50) at 48 to give it plenty of potential runway to climb as it continues to roll out new offerings to compete against The North Face VFC, Patagonia, Canada Goose GOOS, Lululemon LULU, and others. And consumers are clearly ready to start buying non-essential items again.
Sonos is a higher-end home audio maker that specializes in wireless and multi-room sound systems and competes against Bose and others. The baseline Sonos smart speaker starts at $179 and it also makes subwoofers, soundbars for TVs, and more. Sonos sells its speakers individually and in packages, such as surround sound sets that cost up to $1,900.
The speaker firm’s quality and functionality has helped it thrive in a crowded market that includes tech titans like Apple AAPL. And Sonos on March 9 announced its entry into the widely popular portable smart speaker market. The WiFi and Bluetooth-enabled Roam costs $169 and is now the firm’s mass appeal speaker.
Back in November, Sonos rolled out its new ad-free, HD streaming tier of its radio service. Sonos Radio HD costs $7.99 a month and aims to compete against Spotify SPOT, Apple Music, Amazon Music Unlimited AMZN, and others. Sonos also announced last fall a new $50 million repurchase program.
Wall Street is tuned into the speaker firm’s growth story over the last year, with SONO up over 300%, including a 70% climb in 2021. The stock has outclimbed Peloton PTON, Shopify SHOP, and countless other high-flyers in 2021 and over the past 12 months.
SONO closed regular hours Tuesday at $39.30, which put it about 13% below its mid-April records. The recent pullback has pushed the stock below neutral RSI levels to 44. And at 2.9X forward 12-month sales, SONO trades around 10% below its own year-long highs and just above the Zacks Consumer Discretionary Sector’s 2.8X.
Sonos topped our Q1 FY21 estimates in February. The firm’s revenue climbed 15% for the second quarter in a row, and its Free cash flow jumped 97% to $203 million in the first quarter. Plus, it added a record number of new customers and saw a record number of existing customers add to their Sonos product collections.
Sonos and its “industry-leading gross margins” jumped nearly 6% to 46.4% last quarter. And the company is actively improving its direct-to-consumer business.
Sonos is set to release its Q2 FY21 financial results on Wednesday, May 12. Zacks estimates call for Sonos Q2 revenueto surge 44% from an easier-to-compare period last year to come in at $251.5 million. This positivity is projected to help it cut its adjusted loss form -$0.48 to -$0.22 a share. And Sonos is set to see its full-year fiscal 2021 sales jump 18% to $1.6 billion, with FY22 projected to climb 10.4% higher.
These Zacks estimates top FY20’s 5% sales growth and compare well against 2019’s 11% expansion. On the bottom-end of the income statement, SONO is expected to skyrocket from an adjusted loss of -$0.18 a share to +$0.78 this year, with FY22 set to pop an additional 21%.
Some investors might want to wait and see how its actual results and guidance come in next week, especially amid the recent volatility. Yet, Sonos sports an “A” grade for Growth and earns a Zacks Rank #1 (Strong Buy) right now. Therefore, those with longer-term horizons might want to consider SONO as consumer spending ramps up and millennials continue to drive the booming housing market.
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Target Corporation (TGT) : Free Stock Analysis Report
V.F. Corporation (VFC) : Free Stock Analysis Report
Columbia Sportswear Company (COLM) : Free Stock Analysis Report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
lululemon athletica inc. (LULU) : Free Stock Analysis Report
Sonos, Inc. (SONO) : Free Stock Analysis Report
Shopify Inc. (SHOP) : Free Stock Analysis Report
Canada Goose Holdings Inc. (GOOS) : Free Stock Analysis Report
Spotify Technology SA (SPOT) : Free Stock Analysis Report
Peloton Interactive, Inc. (PTON) : Free Stock Analysis Report
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