Top 6 Stocks to Buy on the Dip Despite Market Fluctuations
Volatility returned to U.S. stock markets as we entered September, historically the worst-performing month on Wall Street. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — dropped in the last four trading sessions. According to CFRA, the S&P 500 ended in the positive territory just 45% of the time in September since World War II.
Nevertheless, the fundamentals of the U.S. economy remain strong and the proposed $1.2 billion infrastructure plan of the Biden administration will drive the stock markets. At this stage, a handful of stocks are available with a Zacks Rank #1 (Strong Buy) or 2 (Buy) that have attained a 52-week high in the past four months but are currently trading at more than 20% discount. Investment in these stocks is likely to be fruitful going forward.
September Starts With Volatility
The market’s benchmark — the S&P 500 Index — ended the first eight months of 2021 with its strongest year-to-date gain since 1997. The index also ended in the positive zone for seven months in a row, marking the longest run since the 10-month rally that ended in December 2017. Moreover, in the first eight months of this year, the tech-heavy Nasdaq Composite ended in red only in May. The blue-chip index Dow dropped in January and fell marginally in June.
Despite the strong performance in the first eight months of 2021, September has begun with several concerns on the part of market participants. The rapid spread of the highly infectious Delta variant of coronavirus raised serious concerns about a possible decline in U.S. economic growth.
On Sep 8, the Fed published its Beige Book wherein it was stated that from early July through August, economic growth in the United States “downshifted slightly to a moderate pace.” The reasons were the resurgence of coronavirus, lingering supply-chain disruptions and a shortage of labor.
A series of recently released weak economic data also dented investors’ confidence. Nonfarm payrolls in August were highly disappointing. The index of both consumer confidence and consumer sentiment dropped significantly last month. Manufacturing and services PMIs declined in August. Inflation rates stayed at a 30-year high.
U.S. stock markets are likely to remain subdued as market participants are waiting for the Fed’s decision on the tapering of the $120 billion per month bond-buy program in the next FOMC meeting to be held on Sep 21-22.
Our Top Picks
We have narrowed down our search to six stocks that are currently trading on the dip. These stocks have strong growth potential for the rest of 2021 and have witnessed solid earnings estimate revisions within the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our six picks year to date.
Image Source: Zacks Investment Research
Roku Inc. ROKU is the leading TV streaming platform provider in the United States based on the hours streamed. The company operates in two segments, Platform and Player.
Roku generates revenues from subscriptions and advertising, with the latter offering long-term potential for sustainable growth. Its acquisition of the demand-side platform, Dataxu will position the streaming service provider to compete more fiercely for ad dollars as it shifts from the $70 billion linear TV market to the digital platform.
The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 20.2% over the last 30 days. This Zacks Rank #1 stock is currently trading at a 31% discount from its 52-week high attained on Jul 27.
HP Inc. HPQ is benefiting from solid demand for Personal Computers amid the pandemic-led remote-working and online-learning wave. Recently reported earnings reflect a strong rebound in the Printing business. Furthermore, stringent cost control measures are expected to drive margin over the long run.
The company has an expected earnings growth rate of 63.6% for the current year (ending October 2021). The Zacks Consensus Estimate for current-year earnings improved 6.6% over the last 30 days. This Zacks Rank #1 stock is currently trading at a 21.6% discount from its 52-week high attained on May 10.
Schlumberger Ltd. SLB supplies technology for reservoir characterization, drilling, production, and processing to the oil and gas industry worldwide. It operates in four divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems.
Schlumberger is the largest oilfield services player, with a presence in every energy market across the globe. Being the leading provider of technology for complex oilfields, it is better positioned to take up new offshore projects in international markets. The company is targeting net-zero greenhouse gas emissions by 2050.
The company has an expected earnings growth rate of 83.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 10.6% over the last 60 days. This Zacks Rank #2 stock is currently trading at a 27.8% discount from its 52-week high reached on Jun 4.
The Gap Inc. GPS operates as an apparel retail company. It gained from continued strength at the Old Navy and Athleta brands, improved marketing efforts, better brand management, and advanced technology. It also reported strong growth in key metrics on a two-year basis, reflecting robust growth from the pre-pandemic levels.
Sales benefited from strength in its Old Navy and Athleta brands as well as a solid online show. This along with improved margins aided the bottom line. Gap raised its view for fiscal 2021. The Gap remains on track with its Power Plan 2023.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 24.2% over the last 30 days. This Zacks Rank #1 stock is currently trading at a 34.6% discount from its 52-week high attained on May 18.
Harley-Davidson Inc. HOG manufactures and sells custom, cruiser, and touring motorcycles. It operates in two segments, Motorcycles and Related Products and Financial Services. In sync with long-term growth objectives to optimize its product portfolio and expand its customer base, Harley-Davidson is focusing on motorcycle models and technologies that better align with market trends.
Its turnaround plan, dubbed as ‘Rewire’, and the five-year strategic plan ‘Hardwire’ boosts optimism. Harley-Davidson's plan to make investments in the core segments of Touring and the heavyweight Cruiser unit, and in the expansion of the untapped Adventure Touring segment bodes well. The company's decision to evolve its original LiveWire motorcycle into a dedicated electric vehicle brand is set to bolster business prospects.
The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 17.9% over the last 60 days. This Zacks Rank #2 stock is currently trading at a 28.7% discount from its 52-week high attained on May 18.
The Wendy's Co. WEN operates as a quick-service restaurant company. It operates through three segments: Wendy's U.S., Wendy's International, and Global Real Estate & Development.
The company is benefiting from menu innovation, technological upgrades and international expansion. This along with a focus on Breakfast daypart offerings are likely to drive growth. Going forward, it remains bullish on this business model with plans to boost breakfast daypart sales by 30% in 2021.
The company has an expected earnings growth rate of 42.1% for the current year. The Zacks Consensus Estimate for current-year earnings improved 9.5% over the last 30 days. This Zacks Rank #2 stock is currently trading at a 23.6% discount from its 52-week high attained on Jun 8.
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HP Inc. (HPQ) : Free Stock Analysis Report
Schlumberger Limited (SLB) : Free Stock Analysis Report
HarleyDavidson, Inc. (HOG) : Free Stock Analysis Report
The Gap, Inc. (GPS) : Free Stock Analysis Report
The Wendys Company (WEN) : Free Stock Analysis Report
Roku, Inc. (ROKU) : Free Stock Analysis Report
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