If you’re looking for stocks to buy on last week’s correction, you won’t have a shortage of quality names to choose from. According to Finviz.com, 195 stocks (market caps greater than $2 billion) lost 10% or more over the past five days of trading.
If we’re talking about a calendar week — Dec. 3 to Dec. 7 — the Dow Jones, S&P 500 and Nasdaq Composite Index lost 4.5%, 4.6%, and 4.9% respectively. That’s the worst week for the Dow since March 2018.
It was so bad that all 30 Dow stocks lost ground last week, with Caterpillar (NYSE:CAT) delivering the worst performance at a 8.9% loss.
However, those aren’t the stocks I’m interested in today. I’m looking for seven quality names that lost double digits over the past week.
As a pet project, I’ve studied weekly losers for several years now. My experience tells me that there is an unusually large number of good stocks to buy at the moment.
Here are the seven I believe investors might want to consider.
Lululemon (NASDAQ:LULU), the apparel brand that made the word “athleisure” a household name, has lost 12% over the past week.
That’s the bad news.
The good news if you’re a long-time shareholder is that LULU shares are still up 49% year to date and 59% over the past year.
Former CEO and founder Chip Wilson has made a lot of money over the past year from his 12.8% ownership stake in the company. It’s enough that he’s part of an investment group fronted by China’s Anta Sports (OTCMKTS:ANPDY) that has made a $5.2 billion offer for Amer Sports (OTCMKTS:AGPDY), the Finnish company that owns sporting goods brands such as Wilson, Salomon, Precor and Louisville Slugger.
During this correction, investors have run away from the Vancouver-based company’s stock despite the fact it continues to generate industry-leading sales and earnings results.
Warren Buffett likes when his significant equity holdings drop in price because it allows him to buy more. Should LULU stock fall below $100, investors ought to be buying by the boatload because that’s one heck of a deal.
At around $115, it’s still a growth-at-a-reasonable-price (GARP) stock, in my opinion.
Canada Goose (GOOS)
Canada Goose (NYSE:GOOS) laid an egg this past week, losing 18% of its value and trimming its year-to-date gains to 77% from well into triple digits.
Given the size of the market correction as a whole, it shouldn’t come as a surprise to shareholders that the parka maker would lose some momentum.
Trading at 179 times cash flow and 13 times sales, there is no case to be made that GOOS is any way shape or form a GARP stock. It’s growth and momentum all the way. Live by the sword, die by the sword.
Don’t get me wrong. I believe that Canada Goose, along with Lululemon, are two of Canada’s greatest apparel exports of all time, not just the 21st century. Sometimes, however, the markets need to let off steam. In this instance, it’s expressing disappointment in the trade war that seems likely to carry well into 2019 and beyond. It’s a war that no one wins and likely brings about a recession earlier than anticipated. When this sentiment rears its ugly head, momentum stocks get slaughtered.
Overall, however, there’s nothing wrong with Canada Goose’s business.
In the second quarter of fiscal 2019, Canada Goose reported sales grew by 34% to CAD$230.3 million while adjusted EBITDA rose 53% to CAD$70.9 million. Its direct-to-consumer (its retail stores and online) business increased by 150% in the quarter and now accounts for 22% of its overall revenue, up from 12% in the same quarter a year earlier.
Canada Goose is building a three-headed monster that will continue to take the world by storm. Weekly corrections of 10% or more are a definite sign to buy — but only if you plan to own it for the long haul.
Source: Chris via Flickr
It’s appropriate to say that BRP (NASDAQ:DOOO) stock has gone off the road, down 15.7% over the past week, 27% over the last month, and 42% over the past 90 days. Now trading near a 52-week low, I believe the maker of Ski-Doo snowmobiles, Sea-Doo personal watercraft and Can-Am SSVs, is a screaming buy.
What has changed from the beginning of the year — it closed out 2017 up 75% — that made DOOO less attractive?
That’s hard to say.
BRP’s Q3 2018 results were good with revenues increasing by 14% to CAD$1.4 billion, net income rose by 29% to CAD$90.2 million, and its cash flow during the quarter increased by 23% to CAD$379 million.
Business is good.
However, one analyst believes that the company may have difficulty maintaining its strong growth. “We think BRP deserves to trade at a 15-per-cent premium to its peer (previously 50 per cent),” stated Citi analyst Gregory Badishkanian Dec. 10. “We are lowering our premium due to questions about the sustainability of recent momentum, tougher year-over-year compares (avg. revenue growth of 16 per cent over the last three quarters), rising inventory levels which raises the pressure on retail demand to materialize (up 9 per cent year-over-year in F’3Q and up 7 per cent YoY in F’2Q) and concerns about late cycle economics.”
Despite lowering his price target by 28% to CAD$48, he’s maintained a “buy” rating on its stock.
BRP may indeed have a tougher time in 2019, but in five years, I think you’ll find $28 was an excellent price to buy its stock.
Ulta Beauty (ULTA)
Source: Mike Mozart via Flickr
ULTA lost its appeal with investors Dec. 6 after announcing third-quarter earnings that were good but came with less-than-enthusiastic guidance. Analysts were expecting the company to provide Q4 2018 earnings per share of $3.62; Ulta came with $3.50-$3.55 a share, significantly lower than expectations.
No one likes a letdown.
However, year to date, ULTA is still up 10%, with CEO Mary Dillon very excited about the future.
“Ulta Beauty’s strong performance in the third quarter reflects continued market share gains across all major categories, acceleration in our overall comp driven by healthy traffic, excellent new store productivity, and robust e-commerce growth,” Dillon stated in its press release.
While the company is facing significant competition, putting pressure on its gross margins, Mary Dillon is one of the best CEOs in retail. She will figure out the proper balance between e-commerce and brick-and-mortar to keep it generating healthy profits.
As long as the Kardashian clan don’t lay an egg at Christmas, I could see $300 by the middle of 2019.
SVB Financial (SIVB)
SVB Financial (NASDAQ:SIVB) had the worst performance over the past week of all financial services stocks with a market cap greater than $2 billion, losing 22% of its value.
That’s a fantastic retreat for what had been the best-performing bank stock in 2018. But then October happened and it’s been downhill ever since, losing 37% over the past 90 days. If there’s a must buy among my seven stocks to buy, SIVB would have to be it.
At the end of September, I made SVB Financial one of seven bank stocks investors should own for the long haul.
“Back in 2013, I called SIVB one of the five-best stocks to buy for the next 20 years,” I wrote in September. “Five years in, I’m glad I did because it continues to deliver for shareholders, up to 30% on an annualized basis over those five years.”
Investors are concerned that Silicon Valley Bank is losing deposits to bond funds as interest rates rise. Also, they’re also worried that the party line about banks prospering from higher interest rates isn’t coming to fruition, leaving a lot of bank stocks looking far less attractive.
Under $200, it’s a steal.
Jefferies Financial (JEF)
Jefferies Financial Group (NYSE:JEF), formerly known as Leucadia National — it changed the name in May to reflect the fact Jefferies Financial is its biggest asset — lost 15% over the past week, continuing a slide that has seen JEF stock lose 33% year to date.
Jefferies reported its Q3 2018 results in September. Not much about the investment bank’s 10-Q stands out except its asset management fees, which gained 21% year over year to $5.2 million; a pittance for a firm that generated $465 million in investment banking revenues during the quarter.
Jefferies Financial continues its transformation from being a holding company where Jefferies Group was one of Leucadia’s many investments to a financial services company that provides investment banking services along with equity and fixed-income trading along with an alternative asset management platform to grow third-party assets and the fees that come with it.
I like Jefferies mainly because I see the transformation giving investors a better sense of its true value. While it was Leucadia and there were a lot of puzzle pieces, investors had a more difficult time evaluating its stock.
Acuity Brands (AYI)
Of the seven stocks on my list, Acuity Brands (NYSE:AYI) is the most frustrating. In January, I suggested that Acuity, which specializes in lighting solutions for commercial spaces, was a stock that would surprise in 2018.
Since my Jan. 4 article, AYI stock has lost 35% of its value including 10% in the last week alone. It seems those pesky margins didn’t strengthen as expected.
The good news when it reported Q4 2018 earnings Oct. 3 was that its adjusted earnings per share were $2.68, 12 cents higher than the FactSet consensus estimate.
The bad news was that its input costs: electronic components, freight and wages, were all higher during the quarter leading to a 390 basis point decline in its adjusted operating profits. Steel tariffs and wage inflation put a dent in its margins.
Long-term, I still believe AYI is a $200 stock, although it probably won’t get there in 2019. For now, after the year AYI stock has had, shareholders would probably be happy with anything in positive territory.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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