The economic fallout of the COVID-19 pandemic is likely to get worse as we witness a second wave of cases. However, you would never know it from the stock market, which is trading as if the pandemic is over. Given the risk that a dose of reality will eventually confront the market, where is an investor to turn?
Charles Munger, Vice Chairman of Berkshire Hathaway, offered some sound investment advice: “All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.”
In view of this, we used TipRanks’ database to identify three stocks that the analyst community believes currently offer good value. Each ticker is backed by enough Wall Street analysts to earn a “Strong Buy” consensus rating. Plus, these stocks offer double-digit upside potential.
Ross Stores (ROST)
We’ll start with Ross Stores, an off-price apparel and home fashion retailer. The company operates 1,831 stores in the US, which sell the Ross Dress for Less and dd’s DISCOUNTS brands.
The effects of the COVID-19 pandemic significantly reduced first quarter results, as all of the company’s stores were closed for about half of the quarter. Sales plummeted 52% to $1.8 billion, from $3.8 billion in the prior-year quarter, and the net loss was $306 million versus net income of $421 million the year before. Likewise, the company’s stock has dropped 27% year-to-date.
Even so, Guggenheim analyst Robert Drbul sees better days ahead for Ross. He based his view on the following, “…we remain confident off-price will emerge in a stronger competitive position, driven by 1) Department store & specialty retail store closures, 2) Access to higher quality merchandise and brand-cache level, 3) Favorable real estate (off-mall, large stores), and 4) Consumers’ desire for value in a challenging economic climate.”
As the impacts of COVID-19 persist, weaker economic conditions work in off-price retailers’ favor. People who have lost their jobs or are earning less look to save money by shopping at an off-price retailer.
In light of this, Drbul rates Ross Stores a Buy. The four-star analyst also maintains a $110 price target, which adds up to upside potential of 25% from current levels. (To watch Drbul’s track record, click here)
What does the rest of the Street think? For the most part, other pros agree with Drbul. Looking at the breakdown, we have 15 Buy ratings, 4 Holds and 0 Sells, which amount to a Strong Buy consensus rating. In addition, the $104.11 average price target indicates 18% upside potential for the stock. (See Ross Stores stock analysis on TipRanks)
TJX Companies (TJX)
Next on our list is another off-price retailer, TJX Companies, which sells apparel and home fashions through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX International.
Consistent with the retail industry, TJX’s results were negatively impacted by the COVID-19 pandemic. Like Ross, the crisis caused it to close all of its stores for about half of the first quarter. Still, just prior to COVID-19, the company saw healthy sales gains, as comparable store sales jumped at least 5% across all four of the company’s segments. Moreover, after store re-openings began, sales were strong.
BMO analyst Simeon Siegel thinks that TJX’s solid sales performance after store re-openings is not just a consumer response to pent up demand, but rather a longer-term trend. The four-star analyst explained, “…looking ahead, we continue to see TJX as a post COVID-19 share taker and one of our top long-term ideas; we expect current department store dislocation will provide compelling opportunity to purchase branded inventory and accumulate incremental customers.” This is because some retailers will sell inventory at a discount to raise cash and clear space for the next season.
In line with his optimistic view, Siegel rates the stock an Outperform (i.e. Buy) and has a $58 price target, which translates to upside potential of 10%. (To watch Siegel’s track record, click here)
Turning to the rest of the street, practically all of the analysts agree with Siegel. 16 Buys and 1 Hold signify a Strong Buy consensus rating. Meanwhile, the $62.88 average price target represents nearly 19% potential increase from the current share price. (See TJX stock analysis on TipRanks)
Mondelez International (MDLZ)
Our final stock is Mondelez International, which sells a variety of name brand packaged food products worldwide. The company’s portfolio includes high-profile names like Cadbury, Milka, Toblerone, Oreo, belVita, and LU biscuits.
Mondelez recorded strong first quarter operating results despite the impacts of COVID-19. The company saw a considerable increase in demand for its products, some of which came at the expense of its competitors. Revenue increased 2.6%, while adjusted EPS climbed 10.8% to $0.69.
Turning to the company’s stock performance, it has been basically flat year-to-date, similar to the S&P 500. Nevertheless, Credit Suisse analyst Robert Moskow believes Mondelez’s valuation is appealing relative to other multinational competitors like Nestle and Coke.
After a meeting with the CFO, the analyst is even more bullish on the stock based on, “…the company’s strong execution over the past several quarters (especially in the UK, India, China, and more recently, the U.S.) and its plans to maintain investment spending to further grow market share. Mondelez’ share grew in 80% of its markets in 1Q and organic sales grew 6.5%.”
To this end, Moskow rates Mondelez an Outperform (i.e. Buy), and sets a price target of $62, which implies an upside potential of 14% from current levels. (To watch Moskow’s track record, click here)
Overall, Mondelez gets a unanimous Strong Buy consensus rating from the analyst community. This is based on 9 Buy ratings and no Hold or Sell ratings. The average price target of $60.11 suggests nearly 11% upside potential. (See Mondelez stock-price forecast on TipRanks)
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