Thanks to President Donald Trump and his kamikaze trade plan, the number of great stocks to buy that lost 10% last week went way up. Some of them will probably lose more of their 2019 gains in the weeks ahead.
What we do know is that the markets are petrified of a protracted trade war between the U.S. and China.
According to CNBC, the S&P 500 lost $1.1 trillion in market value between May 5 and May 13, in part due to the president’s combative tweets suggesting he would raise tariffs on $325 billion in Chinese imports after already raising the tariff on $200 billion worth of Chinese goods from 10% to 25%.
How bad has it gotten?
On May 13, the S&P 500 and Dow Jones both lost 2.4% of their value on the day, the worst one-day return since January 3.
“The escalation of trade tensions is likely to weigh on risk assets quite meaningfully in the next few weeks and months because the year-to-date rally was built on two premises: no escalation of trade tensions, and global policy easing,” said Alessio de Longis, the portfolio manager for the global multiasset group at OppenheimerFunds. “One of these pillars has been taken away, and that’s even more important because we are also dealing with the negative underlying force of deteriorating economic data.”
Buying stocks just got even tougher if you believe that U.S. consumers are going to pay the price of a trade plan that’s hell-bent on bringing the Chinese to their knees.
I have news for President Trump. It isn’t going to happen.
That said, here are seven stocks to buy that lost 10% or more during the week of May 6-10, that should rebound in the weeks ahead.
Stocks to Buy: Wolverine World Wide (WWW)
Wolverine World Wide (NYSE:WWW), the Michigan-based maker of footwear brands such as Sperry, Keds, Hush Puppies, Saucony and many more, lost 16.4% during the week of May 6-10, erasing all of its gains for 2019.
Down 9% year to date, WWW set a new 52-week low on Monday.
Why such a downturn?
Well, from everything I’ve read, except for weakness in its Sperry brand, the company’s first-quarter results were more than adequate, with adjusted earnings per share of 49 cents, two cents higher than the analyst consensus, with revenues of $523.4 million, slightly lower than analyst expectations of $533 million.
“Four of our top-five brands delivered revenue above plan during the quarter, including Merrell and Saucony, and our owned e-commerce business continued to be robust, growing 28% over the prior year,” said Blake Krueger, Wolverine’s CEO.
With Wolverine expecting to generate adjusted earnings per share of at least $2.25 a share in 2019 combined with a 25% increase in the quarterly dividend, WWW is probably one of the best options of stocks that lost 10% or more last week.
Gates Industrial (GTES)
Gates Industrial (NYSE:GTES), a manufacturer of power transmission and fluid power systems, lost 17.3% during the week of May 6-10. It is now down 3% year to date through May 13.
Gates lost all of its momentum in 2019 by announcing Q1 2019 earnings May 7 that saw it miss on both the top and bottom line. Analysts were expecting earnings per share of 29 cents. It delivered a penny short. In terms of revenues, Gates had first-quarter sales of $804.9 million, 3.4% shy of the consensus estimate and 5.5% less than a year earlier.
Analysts expect it to earn 36 cents on $884.20 million in revenue in the second quarter and $1.30 EPS and $3.42 billion in sales for the entire fiscal 2019.
With the 17.3% drop, GTES stock is now trading at 10 times its 2019 earnings, significantly lower than the S&P 500.
Although I wouldn’t bet nearly as much on Gates as I would Wolverine World Wide, I still see last week’s significant decline as a buying opportunity.
Magna International (MGA)
Auto parts manufacturer Magna International (NYSE:MGA) reported its first-quarter earnings results May 9 before the markets opened. Unfortunately for Magna shareholders, it reported revenues of $10.59 billion, 1.8% lower than a year earlier. On the bottom line, its earnings per share of $1.63, eight cents or 4.7% shy of analyst expectations and 21 cents lower than a year earlier.
To make matters worse, Magna provided lower guidance for the rest of the year. It now expects a profit of between $1.9 billion and $2.1 billion in 2019, $200 million less at both the low and high ends of its earlier projection for the year. The lower guidance is the result of its change in its forecast for vehicle production in both North America and Europe.
As a result of the bad news, Magna stock lost 13.6% on the week. Like the first two stocks, last week’s losses have erased most of the company’s 2019 gains.
Despite the company’s challenges in a very difficult production environment, CFO Vince Galifi stated that Magna should generate as much as $2 billion in free cash flow in 2019, higher than in 2018. Based on a current market cap of $14.8 billion, we’re talking about a free cash flow yield of 13.7%, providing value investors with a very attractive stock to buy.
Terex (NYSE:TEX), a maker of lift and material processing machinery, wasn’t a great investment over the past decade, delivering an annualized total return of 8.2%, almost half the return generated by the S&P 500.
Last week, Terex stock lost 10.7% of its value, putting TEX stock down 28% over the past 52 weeks. Year to date, however, it’s still up 8% despite the double-digit losses.
Terex’s business is doing a lot better than its share price would indicate.
In Q1 2019, the company’s revenues grew by 6% excluding currency to $1.1 billion. Meanwhile, its adjusted earnings per share were 87 cents, 53% higher than the consensus estimate. So, it beats on both revenues and profits and its stock drops by 10%.
Blame that on President Trump.
However, Terex’s work to simplify its business appears to be paying off. In 2019, it expects revenues of $4.7 billion and earnings per share of $3.90-$4.20 a share; a forward P/E of 7.5.
By exiting the mobile crane business, Terex’s operating profits should move closer to double digits in 2019. Barring a recession in the next couple of years, Terex’s earnings will continue to gather steam in the quarters ahead.
ANGI Homeservices (ANGI)
ANGI Homeservices (NASDAQ:ANGI), the people behind Angie’s List, HomeAdvisor, and several other home-related services, announced its Q1 2019 results May 8. While ANGI stock dropped 13.5% last week on the news, the results themselves were pretty good.
On the top-line, revenues grew 19% during the quarter to $303.4 million. On the bottom line, it made money on a GAAP basis, generating $10 million in profits or 2 cents a share, while its operating loss dropped 66% year over year from $10.8 million to $3.6 million.
So, even though it went from a net loss to a net profit in the first quarter, the fact that it missed the revenue estimate of $306.6 million by just $3.2 million says to me that investors severely overreacted to the miss providing investors with an excellent opportunity to buy on the dip.
Furthermore, the company’s HomeAdvisor and Handy businesses saw revenues increase by 33% during the quarter thanks to a 15% increase in service requests, a 14% increase in the number of paying service professionals, and a 16% increase in revenue per paying professional.
If the company keeps pushing the first two numbers higher, you can bet the third number will also grow. For the entire 2019, it expects operating income of at least $105 million, and it also should generate positive free cash flow.
Expect good things from ANGI in the second half of 2019 and into 2020.
Focus Financial Partners (FOCS)
Focus Financial Partners (NASDAQ:FOCS) loss of 12.1% last week is more about investors taking profits than running for the exits. At least that’s the case if you’re talking about its performance in 2019.
However, while it’s up 27% year to date, it’s flat to its July 2018 IPO price of $33. Focus went public below its pre-IPO marketing range of $35-$39. Often that means that investors are underwhelmed by the offering sending the share price lower.
The reality is that Focus participates in an extremely competitive marketplace. The company admits this very fact in its 10-K:
“The wealth management industry is very competitive, with competition based on a variety of factors, including the ability to attract and retain key wealth management professionals, investment performance, wealth management fee rates, the quality of services provided to clients, the depth and continuity of client relationships, adherence to the fiduciary standard and reputation.”
Focus’s primary strength is acquiring and integrating wealth management advisory firms. In the past two years, it has made no less than 50 acquisitions, and 160 since its founding in 2006. With more than 5,000 potential targets in the U.S., Focus has plenty of work to do over the next 3-5 years to grow its business.
In the fourth quarter, Focus’ organic growth was 7.7%, less than half its growth in Q4 2017. However, much of the decline was due to a market correction in December. That said, Investors should keep an eye on organic revenue because acquisitions can only hide slower growth for so long.
Companhia Brasileira De Distribuicao (CBD)
Companhia Brasileira De Distribuicao (NYSE:CBD), Brazil’s largest retail and distribution group, is more commonly known as GPA. It owns convenience stores, gas stations, supermarkets, furniture stores, retail malls, wholesale cash & carry, electronics, etc.
In fiscal 2018, GPA had total revenue of $12.7 billion and $553 million in operating profits. Over the past four years, it’s grown sales by 42% and operating profits by 17%. In Q1 2019, sales increased by 12% while adjusted EBITDA rose by 18%.
Like most grocery retailers, it makes a little from a lot. Its net margin in the first quarter was 1.4%, 40 basis points higher than a year earlier.
Controlled by Groupe Casino, who owns 37% of its stock, it is Assai, the company’s cash & carry business that intrigues. The second-largest cash & carry business in Brazil, it accounts for almost half of GPA’s food business. Overall, GPA has a 15% market share in the Brazilian retail food industry.
While not everyone is going to want to own Latin American businesses, a little research will demonstrate that its stock’s got staying power.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.