Every quarter, Wall Street’s publicly traded companies reports all the important financial metrics – earnings, revenues, cash, debt, you name it, along with commentary on its past performance and future expectations.
And after those reports, investors typically push shares higher or hit the exits in response to the fresh batch of news.
Occasionally, however, investors will overact to the small three-month snapshot that a company just doled out, ignoring the bigger picture and long-term story. Suddenly, a worthy stock has become unfairly punished.
That spells opportunity for buyers.
Today, I want to look at seven instances where investors might have gotten it wrong. Here are seven stocks to buy that Wall Street probably screwed up.
“Second-Chance” Stocks to Buy: Foot Locker (FL)
Foot Locker, Inc. (NYSE: FL) plummeted more than 15% after the seller of footwear and accessories reported revenue and earnings that fell short of expectations. FL also reported a disappointing 0.5% uptick in comps that calls into question the company’s status as being both “Amazon-proof” and a juggernaut mall retailer.
But taking a look back at Foot Locker’s recent history should give investors some confidence.
In the most recent quarter, Foot Locker played the blame game and attributed its poor performance to a delay in tax refunds. Normally investors should be skeptical of this kind of excuse, but in Foot Locker’s case, it passes muster. During February of last year, Foot Locker issued similar caution thanks to tax refund issues and weakness in the basketball category. But the business caught up during the rest of 2016, the chain went on to post mid-single-digit comps and FL stock rebounded hard.
Foot Locker should follow last year’s blueprint. The retailer is well-positioned to benefit from a large line-up of hot new shoe releases that should be hot. For example, the Air Jordan 7 and Air Jordan 4 will be released soon and come at a premium price. That comes as the Jordan brand grew in Q1, so it has momentum going into the rest of the year.
And despite the tough quarter, management is confident about the rest of the year and still expects mid-single-digit comps in 2017’s back half, as well as double-digit earnings growth. Foot Locker at the very least is among the better retail stocks to buy at the moment.
“Second-Chance” Stocks to Buy: Buffalo Wild Wings (BWLD)
Buffalo Wild Wings (NASDAQ:BWLD) let investors down with its Q1 earnings report back in April, but Wall Street won’t have to wait another couple of months for the next earnings catalyst — shareholders vote June 2 on the company’s direction.
One of the company’s biggest shareholders, Marcato Capital, has been very vocal in its frustration with the restaurant chain’s management and corresponding strategy. The activist investor thinks BWLD stock could hit $400 (well more than double its current price around $150) in a few years if necessary changes are made. Now, it’s putting the fight in shareholders’ hands.
The case for owning Buffalo Wild Wings’ stock is straightforward, at least based on past battles which pitted an activist investor against a restaurant chain. Consider Jeffrey Smith’s activist fund, Starboard Value, which successfully kicked out every last board member of Darden Restaurants (NYSE:DRI) in 2014. A few years later, Darden has made numerous improvements — especially at its Olive Garden chain — and Starboard Value (as well as any other longs) have earned a hefty profit.
Even without major changes, Buffalo Wild Wings stands to gain. BWLD has already introduced cost-savings initiatives that will slash up to $50 million in expenses, as well as introduced loyalty programs to entice consumers to visit the restaurant more often. Management also hinted of a willingness to focus on its off-premise business.
“Second-Chance” Stocks to Buy: JCPenney (JCP)
J C Penney Company Inc (NYSE:JCP) is a department-store mall retailer, and that alone is enough to make most investors skeptical about a turnaround. They didn’t feel any better after Q1 earnings in mid-May sent shares reeling; even after a recovery, they remain 15% lower from that point.
I say give JCPenney — and its three-point plan — a chance.
First, JCPenney is making major moves in its private-label business. As a reminder, during JCP’s 2016 analyst day presentation, management pledged to increase its exclusive brands from 52% of sales to as much as 70% in 2019. If successful, this should drive a recovery in margins.
Second, JCPenney’s push into omnichannel might be a bit late, but it’s better late than never. Management is aiming to boost online sales by double digits every year. It sounds overly optimistic, but any improvement on the online front would be a welcome boost to a struggling top line.
Last, JCPenney is on a mission to boost revenue per customer. It’s doing this by playing to its strength; namely, 70% of its customers are female, and the company is making the right investments — via home and beauty additions — to wring out more per visit.
“Second-Chance” Stocks to Buy: Mattel (MAT)
Mattel, Inc. (NASDAQ:MAT) is off by more than 15% this year, including a big drop following its Q1 report in May. But this remains an interesting turnaround and income play.
Mattel currently yields about 6.7% on a dividend that many investors believe is unsustainable, as its current 38-cent payout comes to more than 100% of next year’s projected earnings. But even if the company cut its yield by half, you’re still looking at a payout of well more than 3%, and probably not much of a negative reaction as many investors have already priced in a cut.
It’s certainly more income than rival Hasbro, Inc. (NASDAQ:HAS) offers; it yields 2.1%.
Also, Mattel’s poor earnings report was dominated by what the company described as a “retail inventory overhang coming out of the holiday period.” However, while that sounded alarm bells, it was followed by encouraging news. Namely, Mattel had worked through most of the inventory overhang.
Mattel also offered encouraging guidance, including Q2 revenue growth in high single digits, and operating margins that should be “up slightly.”
Looking beyond the coming quarter the company expects its sales growth for full-year 2017 to be in the mid-single digits and generate “substantial” cash flows, which could signal that the dividend isn’t in as much jeopardy as some investors fear.
“Second-Chance” Stocks to Buy: TJX (TJX)
TJX Companies (NYSE:TJX) was a surprisingly poor earnings performer, doling out a rough Q1 dominated by a slight 1% gain in comparable-store sales — shy of the 1.5% improvement that analysts expected. The off-price retailer also guided Q2 earnings below consensus estimates, while full-year EPS guidance of $3.82 to $3.89 fell below Wall Street’s $3.90 mark.
But the fact remains TJX — which includes the TJMaxx, Marshalls and HomeGoods brands — is among one of the best stocks to buy in the retail space, because it’s actually operationally sound and actually expanding. During the most recent quarter, the company boosted its store count by 50 units to a total of 3,862, and has plans for another 200 units to follow.
In fact, TJX Companies is confident enough in its brand power that it plans to introduce a second home concept theme separate from its HomeGoods unit.
Retailers like Macy’s Inc (NYSE:M) actually believe the TJX model is their path to salvation. Macy’s is scrambling to duplicate TJX’s business model by testing a one-part retailer, one-part discount retailer business model, though I think this will result in a confused client base.
But customers walking into TJX-brand stores know exactly what they will experience: the thrill of finding a great bargain. And that’s one of the few remaining winning formulas in brick-and-mortar retail.
“Second-Chance” Stocks to Buy: Lowe’s (LOW)
Lowe’s Companies, Inc. (NYSE:LOW) not only reported a poor quarter last month, but also did so in the wake of an impressive outing by rival Home Depot Inc (NYSE:HD). For instance, Lowe’s comps rose 1.9% to miss analysts’ estimates of 3.1% by a mile. Home Depot not only topped that mark with a 5.5% jump in same-store sales, but that was better than expectations for a 4.4% improvement.
Thus, investors could reasonably conclude that Lowe’s troubles in the quarter were company-specific, and aren’t the result of a slowdown in the housing market and home improvement activity.
Fair enough. But Lowe’s at least has a gameplan in place to regain customers it may have lost to Home Depot. Lowe’s is now working with vendors to create more innovative products that provide superior value to consumers. The company also is putting more emphasis on its “professional” category, which management called out for its growth in Q1. Comps for Pro customers were “well above” the company average, partly driven by exclusive products.
Lowe’s is operating in the right market at the right time, and has the resources in place to capitalize on the housing and do-it-yourself industry. It’s lagging rival Home Depot, but investors overreacted, providing a dip in LOW stock that should be bought.
“Second-Chance” Stocks to Buy: Williams-Sonoma (WSM)
Lastly, Williams-Sonoma, Inc. (NYSE:WSM) sold off heavily heading into its late-May earnings report, and while the stock opened notably higher after the announcement, it dipped back into the red by the end of the day.
Williams-Sonoma’s Q1 results were mixed at best; EPS eked out a slight beat, but that came on a skinflint 0.1% improvement in comps that was well short of the 1% uptick analysts expected. But despite the disappointing result, management left its full-year outlook of 1%-3% comps unchanged — a reassuring sign that business is expected to pick up throughout the rest of the year.
The thing I want to focus on was a troubling 0.7% increase in the all-important online category, which came despite the company lowering shipping costs and increasing its marketing initiatives. This implies it’s losing share.
This is where things will change.
Williams-Sonoma is working on something pretty epic: an app that incorporates virtual reality technologies so a consumer can see what one of the company’s products would look like in their home. It’s not the first retailer to do so, and others will follow suit, but the company appears to have succeeded in winning over the increasingly important millennial market. That will matter over time.
WSM still is up about 1% this year, so it’s not as beaten-up as some of the stocks on this list. But it’s off 10% from its April highs, providing investors a better entry point.
As of this writing, Jayson Derrick did not hold a position in any of the aforementioned securities.