When my wife and I were looking to adopt a cat a few years ago, a volunteer told us to check out a friendly, outgoing male with white and gray fur. It was ignored by most wannabe pet parents because his cage was in a back corner where no one would notice him. It was advice that my wife, son and I were glad to take because “Tanner” turned out to be one of the friendliest cats I have ever met.
The same thing happens with stocks to buy that are given “bad cage placement” by short-term thinkers on Wall Street, that the media and Wall Street analysts either ignore or don’t understand very well.
As any cat owner will tell you, a feline can love you one minute and use your hand as a human pin cushion the next, so it pays to be cautious when choosing a new companion.
Unfortunately, the same principal applies to deciding which stocks to buy that can take a bite out of your wallet and leave your finances scratched up or worse.
Below, in no particular order, are five beaten-up stocks to buy now.
Stocks to Buy: Axon (AAXN)
YTD: -7.5%
P/E: 72
Price Target: $30.57 (36% upside)
The reason for the Axon Enterprise Inc (NASDAQ:AAXN) decline were worries about police body camera contracts. The company formerly known as Taser International has a habit of shooting itself in the foot.
On the one hand, there’s Axon’s poorly designed PR stunt to provide free body cameras to every police officer in America for one year. As I noted in a story I wrote for CBS MoneyWatch, many police departments can’t take “free stuff” from vendors and will probably take a pass on AAXN’s deal to avoid any appearances of impropriety. Even if departments can take AAXN’s offer, it’s going to be hard to get them to pay full price for something they have gotten for free.
On the other hand, Axon is by far the market leader in the body camera market and has won business from most of the big city police agencies that have adopted the devices. Departments who have tried the company’s cameras, such Philadelphia’s, are fans.
No wonder revenue from the cameras jumped more than 80% in 2016 to $65.6 million and should continue to perform solidly for the foreseeable future. The Taser business, which is more mature, posted a 25% gain in sales last year to $202.6 million. The stock isn’t cheap but seems poised for a breakout.
Stocks to Buy: Casey’s (CASY)
YTD: -5.6%
P/E: 22.8
Price Target: $126.82 (13% upside
Earnings disappointment. That’s the reason for Casey’s General Store Inc’s (NASDAQ:CASY) decline. Odds are that most investors have probably never seen any of the CASY’s 1,950 convenience stores in 15 Midwestern states that are mostly located in towns with 5,000 or fewer residents. The company has faltered in recent quarters because of rising costs resulting from high employee wages and from opening new locations and revamping existing ones.
At a time when retailers are shuttering locations, Casey’s has 33 new stores, 46 “major” remodels and 21 replacements under construction. It also has 91 sites under agreements for future new store construction and eight sites in the pipeline with contracts to purchase.
The company has ambitious goals for fiscal 2017, including a 6.2% increase of grocery same-store sales with an average margin of 32% versus the 3% increase in this critical metric during the most recent quarter with an average margin of 32%. Casey’s also happens to be the fifth-largest pizza seller, so its prepared-food business is huge.
The operator expects to increase same-store sales in this business by 10.2%, up from a 5.8% increase in the latest quarter with margins growing from 61.7% to 62%.
Even if Casey falls short of these lofty goals, it may make a tempting acquisition target in light of Sunoco’s planned $3.3 billion sale of more than 1,000 convenience stores to the Japanese parent of 7-Eleven.
Stocks to Buy: Simon (SPG)
YTD: -2.5%
P/E: 29.5
Price Target: $204.50 (18% upside)
Worries about the existential threat posed by online shopping put Simon Property Group Inc (NYSE:SPG) squarely in the bears’ sights. As Amazon.com, Inc. (NASDAQ:AMZN) continues to destroy bricks-and-mortar retailers such as Macy’s Inc (NYSE:M), Sears Holding Corp (NASDAQ:SHLD), J C Penney Company Inc (NYSE:JCP), and many others, malls are starting to feel the pinch.
Retail analysts expect 20% of U.S. malls to be repurposed or shuttered. Not surprisingly, retailers who are remaining are calling the shots when it comes to rents.
Malls are graded like report cards, with “A” malls being the best. Simon’s locations such as Pennsylvania’s King of Prussia and the Forum at Caesar’s in Las Vegas attract the type of high-end shoppers who wouldn’t be caught dead in a “regular” retail store. The store closures that have gained lots of headlines have had a minimal impact on SPG, which last year saw occupancy and rents rise.
Indeed, the Indianapolis-based company’s finances are in good shape and its dividend offers a 4% yield, which even in a rising interest rate environment is pretty sweet.
Stocks to Buy: Jack in the Box (JACK)
YTD: -10.3%
P/E: 25.6
Price Target: $115.21 (15% upside)
The wheels came off Jack in the Box Inc. (NASDAQ:JACK) during its latest quarter. Not only were the results lackluster, but the sixth-largest burger chain slashed its earnings guidance for the year.
Even worse, same-store sales at the JACK’s namesake chain and its Qdoba Mexican restaurants are expected to fall during the current quarter. Like larger rival McDonald’s Corporation (NYSE:MCD), JACK is being hurt by rising competition and labor costs.
However, JACK has the potential to grow outside of its current footprint largely concentrated in Texas and California. A recent note from Baird makes a compelling case for the company to unload Qdoba, which the company had counted on to fuel growth until recently.
The company also is hoping to boost business the “right way” by improving the quality of its food as opposed to margin-destroying promotions, which should benefit shareholders over the long run.
Stocks to Buy: Vulcan (VMC)
YTD: -3.6%
P/E: 38.82
Price Target: $137.92 (13.2% upside)
The reason for decline in Vulcan Materials Company (NYSE:VMC): Worries about Trump’s infrastructure plan. Though President Donald Trump has vowed to spend $1 trillion upgrading the nation’s crumbling infrastructure, considering the shenanigans that are going on in Congress, who knows if that plan will come to fruition.
VMC also disappointed Wall Street during its most recent quarter, though I would take these results with a grain of salt since the media ignores the company’s earnings reports. The company makes aggregates — stone, sand and gravel — and other materials including asphalt and ready-mixed concrete, which are especially sensitive to pricing.
Many experts believe that Trump’s infrastructure plan barely scratches the surface of the country’s need. The American Society of Civil Engineers speaks of $2 trillion, 10-year investment gap and calls for an investment increase from 2.5% to 3.5% of U.S. gross domestic product by 2025.
Let’s not forget Trump’s border wall, which could easily cost $20 billion, which Mexican rival Cemex SAB de CV (ADR) (NYSE:CX) is passing on for political reasons. Then there are the huge numbers of state projects like the highway in Atlanta that was recently destroyed in a fire that will cost a pretty penny to fix. VMC, however, has a lot to like for investors including a solid balance sheet and best of all is only operating at about 60% of capacity.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.
