For Immediate Release
Chicago, IL – November 16, 2023 – Zacks Equity Research shares Construction Partners ROAD as the Bull of the Day and Dorman Products DORM as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Microsoft MSFT, Meta Platforms META and GIII Apparel Group GIII.
Here is a synopsis of all five stocks.
Bull of the Day:
Construction Partners, a Zacks Rank #1 (Strong Buy), is engaged in the construction of roadways across several southern U.S. states. ROAD shares are widely outperforming the market over the past six months with the backing of a leading industry group. The stock is hitting a series of 52-week highs and displaying relative strength as buying pressure accumulates in this top-ranked stock.
ROAD stock is part of the Zacks Building Products – Miscellaneous industry group, which ranks in the top 11% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months, just as it has over the course of the year:
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Construction Partners, a civil infrastructure company, builds and maintains roadways across Alabama, Florida, Georgia, North Carolina, and South Carolina. The company provides various products and services to public and private infrastructure projects with a focus on highways, roads, bridges, airports, and commercial and residential developments.
ROAD also engages in manufacturing and distribution of hot mix asphalt, paving activities, and site development, the latter of which includes the installation of utility and drainage systems. Formerly known as SunTx CPI Growth Company, Construction Partners was incorporated in 1999 and is headquartered in Dothan, Alabama.
Earnings Trends and Future Estimates
The construction company has put together an impressive earnings history, surpassing earnings estimates in three of the last four quarters. Back in August, the company reported fiscal third-quarter earnings of $0.41/share, a 28.13% surprise over the $0.32/share consensus estimate. Construction Partners has delivered a trailing four-quarter average earnings surprise of 10.6%.
ROAD shares have received a boost as analysts covering the company have been increasing their Q4 earnings estimates lately. For the fiscal fourth quarter, earnings estimates have risen 6.12% in the past 60 days. The Q4 Zacks Consensus EPS Estimate now stands at $0.52/share, reflecting a staggering potential growth rate of 108% relative to the year-ago period.
Let’s Get Technical
ROAD shares have advanced more than 50% in the past 6 months. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of 52-week highs, widely outperforming the major indices. With both strong fundamentals and technicals, ROAD stock is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Construction Partners has recently witnessed positive revisions. As long as this trend remains intact (and ROAD continues to deliver earnings beats), the stock will likely continue its bullish run into the end of this year and beyond.
Construction Partners is ranked favorably by our Zacks Style Scores, with a top mark in our Growth category. This indicates that further upside is likely based on favorable earnings and sales metrics.
Backed by a top industry group and an impressive history of earnings beats, it’s not difficult to see why this company is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix. The future looks bright for this highly-ranked, leading stock.
Bear of the Day:
Dorman Products supplies replacement and upgrade parts for passenger cars, light trucks, and medium- and heavy-duty trucks in the automotive market. The company offers powertrain products including intake and exhaust manifolds, fluid lines, drain plugs, transmission and axle components, and other suspension, steering and brake mechanisms.
In addition, Dorman Products provides other motor vehicle parts such as door handles and hinges, window lift motors, lighting and electrical components, and windshield wiper assemblies. The company offers its products under brands such as Dorman, Dayton Parts, SuperATV, Keller Performance Products, and Gboost through retail stores, online websites, dealers, and warehouse distributors.
The Zacks Rundown
DORM stock is a Zacks Rank #5 (Strong Sell) and is part of the Zacks Automotive – Replacement Parts industry group, which ranks in the bottom 14% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the course of the year.
Candidates in the bottom tiers of industries can often be potential short candidates. While individual stocks have the ability to outperform even when included in a poorly-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Adding to the underperformance this year, stocks in this group are experiencing negative earnings growth.
As a part of this group, DORM stock has experienced considerable volatility in 2023; shares recently touched a 52-week low.
Recent Earnings Misses and Deteriorating Outlook
Dorman Products has fallen short of earnings estimates in three of the past four quarters. The auto parts company most recently reported third-quarter earnings back in October of $1.40/share, missing the $1.60/share consensus EPS estimate by 12.5%.
The company has missed earnings estimates by an average of 13.95% over the past four quarters. Consistently falling short of earnings estimates is a recipe for underperformance, and DORM is no exception.
Dorman Products has been on the receiving end of negative earnings estimate revisions as of late. For the current fiscal year, analysts have decreased estimates by 15.12% in the past 60 days. The 2023 Zacks Consensus EPS Estimate now stands at $4.38/share, translating to negative growth of -7.98% relative to last year.
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
As illustrated below, DORM stock is in a sustained downtrend. Notice how shares have plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, with no respite from the selling in sight. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.
While not the most accurate indicator, DORM stock has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. DORM would have to make a stern move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. Shares have fallen nearly 20% in the past year alone and have failed to participate in this year’s rally.
A deteriorating fundamental and technical backdrop show that this stock is not set to hit new highs anytime soon. The fact that DORM is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
DORM shares continue to experience substantial volatility and have widely underperformed this year. A recent uptick is providing bearish investors with an appealing entry point. Bulls should avoid this stock as there are plenty of better alternatives in the current market environment.
3 Big Winners on Signs of Inflation Cooling Down
An increase in gas and rents had elevated the cost of living in September. But inflation cooled down in October, a tell-tale sign that the Federal Reserve’s aggressive monetary policy to curb price pressures has made incremental progress.
The Bureau of Labor Statistics reported that the consumer price index (CPI) increased 3.2% year over year in October, down from September’s increase of 3.7%. It’s also the lowest annual rate of increase since March 2021.
The CPI remained unchanged month over month in October for the first time since July 2022. On a monthly basis, the CPI had increased 0.4% in September. Analysts had projected a monthly increase of 0.1% and a year-over-year gain of 3.3%.
The annual increase in consumer prices in most of the categories witnessed a slight increase in October. The cost of food and shelter rose mildly. On the other hand, the cost of gasoline fell considerably.
The core CPI, which excludes the volatile energy and food prices, increased 0.2% monthly, and 4% annually. The core CPI, in reality, registered its lowest yearly increase since September 2021.
Thus, the slowdown in both the headline as well as core inflation allows the Fed to do away with its hawkish stance. The Fed has already given hints that it is done with hiking rates, and the majority of market participants are now expecting it to keep rates unchanged in the December meeting.
Hence, the likelihood of a pause in interest rate hikes bodes well for tech stocks. This is because rate hikes adversely impact tech’s future cash inflow, leading to fewer reinvestments in innovation and eventually hampering growth. Moreover, in case of rate hikes, the cost of borrowing of tech companies goes up, and they are left with less cash in hand.
Like tech, consumer discretionary companies also tend to benefit amid signs of cooling inflation. This is because lower price pressures will help consumers to spend more on nonobligatory items.
Consumers, anyhow, are expected to open up their wallets during the busy holiday season, thereby benefiting consumer discretionary players (read more: 5 Stocks to Gain as Americans Go on a Spending Spree).
Hence, from an investment perspective, we have highlighted Microsoft, Meta Platforms and GIII Apparel Group, which are most likely to make the most of less inflationary pressure. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).
The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum; the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.
Microsoft is one of the largest broad-based technology providers in the world. Microsoft, currently, has a Zacks Rank #2 and a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 2.1% over the past 60 days. MSFT’s expected earnings growth rate for the current year is 13.5%.
Meta Platforms is the world’s largest social media platform. Meta Platforms, currently, has a Zacks Rank #2 and a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 5.5% over the past 60 days. META’s expected earnings growth rate for the current year is 44.3%.
GIII Apparel Group is a manufacturer, designer, and distributor of apparel and accessories under licensed brands, owned brands, and private label brands. GIII Apparel, currently, has a Zacks Rank #1 and a VGM Score of A.
The Zacks Consensus Estimate for its current-year earnings has moved up 2.8% over the past 60 days. GIII’s expected earnings growth rate for the current year is 14.7%.
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