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Small stocks typically aren’t the best place to be when the Fed is carefully engineering a slowdown in the economy (even if a total crash isn’t part of the plan!).
Still, inflation is the bull that has simply got to be flagged, or at least grabbed by the horns before things get way out of hand. Statistics from the Bureau of Economic Analysis (BEA) show that while personal income in May continued to grow, the savings rate continued to decline, driven by consumption expenditures, which continued to increase.
Expenditures increased the most in housing (where we just don’t have enough inventory), energy (where prices are killing us) and other services including travel and recreation-related services (where there is pent-up demand). While some of the housing and a lot of the services may not be essential, we can’t say the same about food, beverages and energy. This is why inflation has become a problem that has to be solved immediately.
And so, the Fed is doing its thing.
The one thing that still supports the Fed is income levels. A sub-4% unemployment rate may be considered full employment, even if things have changed slightly in the last couple of months. Additionally, job openings, while dropping from their peak in March, still remain very high at 1.9 per unemployed person. Since the quits rate fell to a 4-month low in May, we can probably say that the employment situation is stable.
Although, more current data indicates a slight deterioration in the situation since May. The increase in jobless claims for instance indicate that job cuts may have increased somewhat since April. But independent market reports suggest that most of these cuts may be in select sectors such as automotive (a number of factors, including supply constraints, labor constraints, high fuel costs, etc. are weighing on it) and smaller tech (difficult comps). A more broad-based reduction may be in the offing however.
From the look of things, we can say that the situation has to get worse before it gets better. For instance, it would be nice to see home prices coming down and people cooling off travel plans this summer. But we are not there yet. And we could get negative GDP and job losses instead.
So normally, I wouldn’t recommend anything but the safest large-cap stocks. The main reason I’m breaking from that theory is that there are ways to put less money to work (if that’s what you can spare now).
Zacks methodology has a proven track record and helps you select stocks that outperform the market. First take a look at the Zacks Rank #1 (Strong Buy) list and select only those stocks that belong to attractive Zacks-ranked industries, i.e. the top 50%.
It has been seen historically that a Rank #1 stock, when it belongs to the top 50% of Zacks-ranked industries has an above-average chance of near-term upside. Then take a look at the estimate revisions trend. When all these factors are supportive, chances are high that you’ve picked a winner. Let’s consider some examples:
Bluegreen Vacations BVH
Zacks #1 ranked Bluegreen Vacations sells vacation ownership interests (VOI) and manages resorts in leisure and urban destinations.
With travel still very much on everyone’s minds, the Leisure and Recreation Services industry to which Bluegreen belongs still looks attractive. It is consequently in the top 26% of Zacks-classified industries.
The VOI/timeshare model that the company has adopted helps cover maintenance costs and occupancy issues even when it is off-season and when people are not traveling for other reasons, such as during a recession. So it is a better model for the current times.
The two analysts providing estimates see revenue increasing 11% and 3%, respectively in 2022 and 2023. Earnings are expected to grow a respective 35% and 11%. The 2022 earnings estimate has increased 5% in the last 60 days while the 2023 estimate has increased 8%.
At 6.1X forward earnings, the shares are very cheap.
Bowman Consulting Group BWMN
Bowman Consulting offers engineering, construction management and related services in the real estate, energy, infrastructure and environmental segments. The U.S.-focused company has a Zacks Rank #1.
It belongs to the Business – Services industry (top 32%). Construction work remains in full swing despite fears related to the recession. All of Bowman’s targeted markets have secular drivers.
Bowman’s current-year estimate has jumped 124% in the last 60 days. The 2023 estimate has increased 10%. Current year earnings are expected to grow 1167% on revenue that’s expected to grow 45%. Next year, earnings will grow 45% on 15% revenue growth.
At 23.9X earnings, the shares aren’t exactly cheap, but they are at the lowest point of their annual range over the past year.
Bay Commercial Bank BCML
Zacks #1 ranked Bay Commercial provides various financial services to small and mid-sized businesses, service professionals and individuals. It belongs to the Banks – West industry (top 16%).
Bay Commercial’s estimates have been rising in the last 60 days. The 2022 estimate increased 5% and the 2023 estimate increased 6%.
Revenue and earnings are expected to grow 27% and 23%, respectively. They are expected to grow a respective 7% and 9% next year.
At 8.4X earnings, the shares are definitely worth considering at this point.
One-Month Price Performance
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Bay Commercial Bank (BCML) : Free Stock Analysis Report
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