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3 Cheap Stocks to Buy Now for Big Upside in November

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·9 min read
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  • ^GSPC
  • SONO
  • ELY

The Nasdaq broke records Thursday amid strong quarterly showings from technology companies with outsized sway over the market. Wall Street looked beyond slower third quarter GDP growth to focus on positive signs as the economy heads into the heart of the holiday spending season.

U.S. GDP grew by 2% last quarter, as the Delta variant dragged down spending and crushed global supply chains. The third quarter represented a substantial slowdown from Q2’s 6.7% growth and Q1’s 6.3%, driven by the massive economic reopening and continued government stimulus. The forward-facing markets have moved way beyond Q3 GDP setbacks, shifting the focus to the improving earnings picture and the solid outlook for S&P 500 margins going forward.

On top of that, the U.S. economy is bouncing back in the early weeks of the fourth quarter. Fresh data showed that hotel occupancy hit its highest levels since mid-August in the middle of the month. Plus, reservations site OpenTable figures showed that the number of diners seated at restaurants was down only 5% for the week ended Oct. 27 compared to the same period prior to the pandemic in 2019.

Persistent supply chain bottlenecks and rising prices remain. Despite the economic headwinds, U.S. consumer confidence increased in October, after three months of declines. American consumers are shaking off fears and still plan on spending big this season despite rising prices. “While short-term inflation concerns rose to a 13-year high, the impact on confidence was muted,” Senior Director of Economic Indicators at The Conference Board Lynn Franco said in prepared remarks.

“The proportion of consumers planning to purchase homes, automobiles, and major appliances all increased in October. Likewise, nearly half of respondents (47.6%) said they intend to take a vacation within the next six months—the highest level since February 2020, a reflection of the ongoing resurgence in consumers’ willingness to travel and spend on in-person services.”

The bulls have taken the helm once again, with all three major U.S. indexes breaking fresh records during the final week of October. Everyone from banking giants to tech firms have posted stronger-than-projected financial results, with many market-movers, including Microsoft MSFT, jumping to new highs after their releases (also read: A Very Strong and Improving Earnings Picture).

On top of that, the overall S&P 500 earnings outlook for Q3 has surged in the last several weeks. Plus, interest rates will favor stocks for the foreseeable future, even when the Fed starts to lift its core rate.

With this backdrop, investors might want to consider buying strong stocks that have yet to return to their previous highs. Today, we also focused on stocks that are trading for around $30 or less…

Levi Strauss & Co. LEVI

Levi returned to the public markets in 2019 and investors began to take notice of the iconic denim firm’s growth potential last year. The company’s core business remains jeans for men, women, and kids, and in the cyclical fashion world, denim could be on the cusp of a comeback to fight back against the athleisure wave.

The economic reopening has already increased demand for jeans. The company’s Q3 results, which it reported in early October, showcased rebounding denim. Quarterly sales climbed 41% compared to the year-ago period and 3% vs. FY19, while its adjusted earnings surged to easily beat our EPS estimate—digital represented roughly 20% of revenue.

Levi executives said on its earnings call that it’s in the midst of a resurgent denim cycle. Nonetheless, the company is diversifying far beyond jeans. CEO Chip Bergh has projected that half of Levi’s sales will come outside of denim bottoms over the next decade, up from just 11% in 2015 and 21% in 2020.

Levi is selling clothing to help it compete against Lululemon LULU and other athleisure firms. And it bolstered its non-denim business with its late-September acquisition of Beyond Yoga.

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Zacks Investment Research

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Zacks estimates call for Levi’s revenue to climb over 29% this year to reach its pre-pandemic total of $5.76 billion and then jump another 11% in FY22 to $6.39 billion. Its adjusted EPS are projected to soar 585% to $1.44 a share this year, with FY22 set to pop 5% higher. And analysts have raised their bottom-line estimates to help the stock grab a Zacks Rank #2 (Buy) right now.

Levi is part of the Retail-Apparel and Shoes space that’s in the top 25% of over 250 Zacks industries. This is a good sign heading into the holiday shopping season. Wall Street is high on the stock, with five of the six brokerage recommendations Zacks has sitting at “Strong Buys” with the other at a “Buy.” The company also boosted its buyback efforts and lifted its dividend payment to its pre-pandemic levels.

Levi shares are up 60% in the last year to outpace its industry and the S&P 500’s 40%. The stock has pulled back from its May records and it currently trades 15% below its highs at around $26 a share, even as the market breaks new ground.

Levi bounced above some key technical levels recently and it trades at a 30% discount to where it was six months at 17.1X forward earnings. Plus, the Zacks consensus price target of $34.60 a share marks 33% upside to Thursday’s closing price.

Sonos SONO

Sonos is a home audio firm that specializes in wireless and multi-room sound systems. The company competes against Bose and others in the higher-end home speaker market. It sells a range of sleek, connected speakers, subwoofers, soundbars for TVs, and more. Its baseline speaker starts at $179 and packages cost up to $1,900. Earlier this year, Sonos entered the popular portable smart speaker space with its new $169 mass-market Roam speaker.

The company has benefited from the larger shift to modern, connected devices and it’s poised to gain as more people spend on home-based upgrades. The firm is also expanding its non-speaker business, with an ad-free streaming tier of its music service dubbed Sonos Radio HD, which costs $7.99 a month and competes against Spotify SPOT, Apple Music AAPL, and various other music platforms.

Sonos revenue climbed 11% in FY19 and 5% last year. Zacks estimates call for its 2021 (year ended October 2) sales to surge 29% to $1.71 billion, with FY22 projected to climb 11% higher. And it’s expected to swing from an adjusted loss of -$0.18 a share last year all the way to +$1.11 in FY21, with FY22 set to climb another 6% higher.

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Zacks Investment Research

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The firm’s strong management team helped it rip off four-straight huge quarterly earnings beats and its positive FY21 and FY22 EPS revisions help it land a Zacks Rank #1 (Strong Buy) right now. Sonos grabs an “A” grade for Growth in our Style Scores system and its Audio Video Production space ranks in the top 10% of our 250 Zacks industries.

Sonos struggled after its 2018 IPO, but it soared off the coronavirus lows, with its shares now up 110% in the last 12 months alone. It has cooled off a ton in the last six months to help set up a more enticing entry point. Sonos closed regular hours Thursday down around 25% from its April records at $32.01 a share. And its current Zacks consensus price target marks similar upside potential.

Sonos does sit below both its 50-day and 200-day moving averages. Luckily, some recent positivity helped it jump above oversold RSI levels (30 or under) to hover below neutral within this often-tracked technical range. Its valuation also appears far more attractive to help provide solid runway.

Investors might want to take a chance on the high-end modern speaker firm at its current levels. Though, it is worth pointing out that it’s set to release its Q4 results on November 17.

Callaway Golf Company ELY

Callaway manufactures and sells high-end golf equipment and apparel. The firm that went public back in the early 1990s has expanded through acquisitions. Its portfolio now features multiple brands, including its namesake, Odyssey, upstart power TravisMathew, and others.

Callaway’s biggest move was stepping outside of gear and apparel into the entertainment business when it closed its merger with fast-growing, high-tech driving range company Topgolf in March.

The Topgolf purchase could prove to be a hit since the upscale driving range chain attracts tons of “non-golfers.” This is vital for a sport that struggles to grow its consumer base. Still, Callaway posted strong double-digit revenue growth in FY17-FY19, including 36% top-line expansion before the pandemic—FY20 sales did slip around 6%.

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Zacks Investment Research

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Zacks estimates call for Callaway's FY21 revenue to soar 94% from $1.6 billion to $3.1 billion, driven by Topgolf’s inclusion. ELY is then projected to follow up this expansion with another 18% growth in FY22. Its adjusted earnings are projected to slip this year and bounce back slightly in 2022. And its bottom-line outlook has continually improved recently to help it grab a Zacks Rank #2 (Buy) right now.

Similar to its peers on this list, Callaway is part of a highly-ranked industry, with the Leisure and Recreation Products industry in the top 11% of over 250 Zacks industries. And Wall Street is even more bullish on the stock recently, with eight of the 10 brokerage recommendations Zacks has at “Strong Buys.”

Despite the positives, Callaway closed regular trading Thursday 27% below its May highs at $26.93 a share. The current downturn began when it climbed above overbought RSI levels in late May. Investors still haven’t jumped back into the stock and they showed their displeasure for its secondary stock offering that was priced at $29.25 a share and closed on September 20.

Callaway shares are still up 75% in the last year and now might be time to consider buying the beaten-down stock with its Q3 earnings in sight. The opportunity is even more appealing given that ELY’s current Zacks consensus price target of $39.10 marks 45% upside to where it trades at the moment.


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Apple Inc. (AAPL) : Free Stock Analysis Report

Microsoft Corporation (MSFT) : Free Stock Analysis Report

lululemon athletica inc. (LULU) : Free Stock Analysis Report

Sonos, Inc. (SONO) : Free Stock Analysis Report

Callaway Golf Company (ELY) : Free Stock Analysis Report

Spotify Technology (SPOT) : Free Stock Analysis Report

Levi Strauss & Co. (LEVI) : Free Stock Analysis Report

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