3 Stocks to Buy on Strong Pandemic Demand
It would have been frivolous to run the Zacks #1 Rank Uptrends screen a couple months ago. Looking for upward price momentum during the sharpest and quickest descent into a bear market? What’s the point?
But that was then, and this is now. Since that late March low, each of the major indices have roared back by more than 40%! So its suddenly the perfect time to look for stocks that are enjoying strong buying demand and are within stringing distance of new highs.
Below are three stocks that recently passed this screen’s test. However, there are now dozens of names on the list. So make sure to click here for all the parameters of this tool and all of the names that are bouncing back from this ordeal.
Wayfair (W)
If you’re doing a little pandemic redecorating, it’s important to get exactly what you need at a good price. We want to make sure we don’t flip out in our own homes, but would also like people to say “well isn’t that cute” when they do eventually come over for a visit.
That’s where Wayfair (W) comes in. The company is a leading online seller of home goods products, such as furniture and home décor. It claims a selection of more than 18 million items. If that kind of variety doesn’t keep you from going crazy while being shut-in, then you were probably crazy to begin with.
Shares of W have soared 488% since the March 23 low. It went from around $90 when the year began to about $30 at the worst of the selloff and then soared to its current level… which is well over $150.
Revenue in the first quarter jumped nearly 20% to $2.3 billion. Perhaps more importantly though, the number of active customers in its direct retail business climbed 29% to 21.1 million.
W’s aggressive investment in international regions appears to be paying off, as international net revenue increased 23.7%. The company is especially encouraged by its progress in the U.K. and Germany. Meanwhile, net revenue in the U.S. increased 19.1%.
However, the company isn’t profitable, but it’s heading in that direction. It lost $2.30 in its first quarter, which was 9.45% better than the Zacks Consensus Estimate. In other words, we were expecting a sharper loss.
And analysts see much more this year. They now expect a loss of $4.85 for 2020, which has improved from losses of $6.24 and $9.56 from 30 days and 60 days back, respectively. As for 2021, the deficit has narrowed to $3.46 from losses of $5.02 and $8.40.
You probably don’t think this type of momentum could continue. And you’d be right. Fingers crossed, this shutdown is a once-in-a-lifetime event. However, it’s very encouraging that analysts expect losses to continue narrowing next year, when the coronavirus will hopefully be a thing of the past.
Activision Blizzard (ATVI)
Activision Blizzard (ATVI) was a stay-at-home stock before stay-at-home stocks were cool.
It’s a leading developer and publisher of console, online and mobile video games. This space was strong before the coronavirus, got even stronger during the shutdown and will continue to perform when this pandemic is history.
So its no wonder why the Toys – Games – Hobbies space is in the Top 4% of the Zacks Industry Rank. It ain’t because people are buying Slinkys or Rubik’s Cubes.
Instead, they are buying Call of Duty and World of Warfare. But there’re not going to a store and picking up a cartridge or disc like some ancient relic from the early aughts.
No, they’re downloading this stuff. And ATVI’s agility in shifting to this digital download format is one of the reasons why it continues to be a major player in an industry that’s just getting bigger.
Shares are up 25% since the coronavirus low on March 23. Now, usually that would be an amazing advance, but we’ve been seeing even more impressive surges over the market’s bounce back in the past two months.
However, the stock was a little over $56 on that day, which means it was only lower by about $3 from where it started 2020. In other words, this stock didn’t see the apocalyptic plunge that many experienced earlier this year.
ATVI has beaten for five straight quarters. Most recently, it topped our expectations by 48.7%, which brought the four-quarter average surprise to a little over 31%.
Revenue came in at $1.74 billion with net bookings rising 20% to $1.52 billion. Overall monthly active users were 407 million!
But perhaps the biggest news for the quarter was that ATVI raised its full-year outlook! You don’t hear a whole lot about that these days. In fact, quite the opposite.
The company knows that video games are going to remain popular after we get back to normal… and the analysts are in agreement.
The Zacks Consensus Estimate of $2.74 has advanced 10.5% over the past 30 days. Meanwhile, the expectation for next year has climbed 8.2% in that time to $3.02.
Therefore, analysts currently see earnings growth of more than 10% in 2021 over 2020.
Dollar General (DG)
If you’re one of the more than 40 million people that have lost their jobs or been furloughed during this shutdown, then your buying is more focused on the essentials than the discretionary.
Forget about a new TV or using this pandemic as a chance to redecorate. It’s all about the things that you can’t do without… and at a low price.
That’s why Dollar General (DG) had such a good fiscal first quarter report and why earnings estimates are on the rise. Furthermore, shares have gained more than 35% since the coronavirus low on March 23.
This discount retailer, which is in the Top 14% of the Zacks Industry Rank, reported earnings per share of $2.56 recently. The company had beaten the Zacks Consensus Estimate in the previous four quarters, but this time it surprised by more than 50%!
Revenue of nearly $8.5 billion also topped our expectations by more than 13%. It has beaten estimates for 8 straight quarters now.
Revenue grew 27.6% from last year, while same-store sales were up 21.7%.
Looking forward, DG is pretty confident that it will top fiscal 2020 net sales, same-store sales and diluted EPS guidance that was issued on March 12, 2020. However, the situation is too uncertain at the moment to provide a forecast. Therefore, it withdrew the guidance issued on that date.
Analysts, however, are still pretty encouraged moving forward. The Zacks Consensus Estimate for this year (ending January 2021) improved 8.7% in the past 30 days to $8.11.
If this year is uncertain, then next year is even more so. Yet, the Zacks Consensus Estimate for the year ending January 2022 had advanced 3.9% in that time to $8.61.
Therefore, at the moment, earnings are still expected to grow 6.2% next year.
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