Editor’s note: This story was previously published in May 2019. It has since been updated and republished.
It’s a different market than it was at the beginning of 2018.
It’s a choppier, more cautious, environment. That’s not a bad thing, however. After a basically uninterrupted post-election rally, several stocks have seen pullbacks that provide more attractive entry points. Others simply haven’t received their due credit from the market.
While there might be reasons for caution overall — higher interest rates, trade war concerns — more opportunities exist as well.
This more and more looks like a “stockpicker’s market.” For those stockpickers, here are 10 stocks to buy that look particularly attractive.
Exxon Mobil (XOM)
Past year performance: -10%
I’m as surprised as anyone that Exxon Mobil Corporation (NYSE:XOM) makes this list. I’ve long been skeptical toward XOM. The internal hedge between upstream and downstream operations makes Exxon stock a surprisingly poor play on higher oil prices, as we’ve seen in recent weeks. Overall, it leads XOM to stay relatively rangebound, as it has been for basically a decade now.
With the dividend well over 4% and a 14.5 times forward price-earnings (P/E) multiple, Exxon Mobil stock looks like a value play. Meanwhile, management is forecasting that earnings can double by 2025, adding a modest growth component to the story.
Obviously, there’s a risk that Exxon management is being too optimistic. Years of underperformance relative to peers like Chevron (NYSE:CVX) and even BP (NYSE:BP) has eroded the market’s confidence. If Tesla Inc (NASDAQ:TSLA) can lead a true electric car revolution, that, too, could impact demand and pricing going forward.
Nathan’s Famous (NATH)
Past year performance: -26.5 %
In this market, recommending a restaurant owner, let alone a hot dog restaurant owner, might seem silly at best. But there’s a strong bull case for Nathan’s Famous, Inc. (NASDAQ:NATH).
NATH, too, has seen a steady decline since late 2018. The stock touched a 52-week (and all-time) high just over $100 in July 2018. It’s since come down about 50%, yet the story hasn’t really changed all that much.
Revenues grew by just about 8% in 2018 (the most recent fiscal year). The company’s agreement with John Morrell, who manufactures Nathan’s product for retail sale and Sam’s Club operations, offers huge margins, while its bottom line continues to grow. Foodservice sales similarly are increasing.
The restaurant business has been choppier, but it remains profitable. The “mostly franchised” model there is similar to those of Domino’s Pizza (NYSE:DPZ) and Yum! Brands (NYSE:YUM), among others, all of whom are getting well above-market multiples.
All told, Nathan’s has an attractive licensing model, which leverages revenue growth across the operating businesses. And yet, at 13x EV/EBITDA, the stock trades at a significant discount to peers.
Bank of America (BAC)
Past year performance: -8%
Bank of America Corp (NYSE:BAC) trades just a few dollars off its highest levels since the financial crisis and has gained over 100% from July 2016 lows. Trading has been a bit choppier of late, and there’s a case, perhaps, to wait for a better entry point.
But I’ve liked BAC stock for some time now, and, as I wrote previously, I don’t see any reason to back off yet. Earnings growth should be solid for the foreseeable future, given rising interest rates and a strong economy.
BofA itself has executed nicely over the past few years. The company’s credit profile is solid and its stock has outperformed other big banks like JPMorgan Chase & Co. (NYSE:JPM). And tax reform and easing capital restrictions mean a big dividend hike could be on the way as well.
And despite the big run, it’s not as if BAC is expensive. The stock still trades at less than ten times 2019 EPS estimates. Unless the economy turns south quickly, that seems too cheap. So it looks like the big run in Bank of America stock isn’t over yet.
Past year performance: 145%
Roku Inc (NASDAQ:ROKU) undoubtedly is the riskiest stock on this list, and there certainly is a case for caution. The company remains unprofitable on even an Adjusted EBITDA basis. A 9x EV/revenue multiple isn’t cheap.
But with more than 28 million active users, Roku is a fast-growing platform deserving of its high-ish multiple. This year, Roku looks to build a true content ecosystem, and from a subscriber standpoint, already has surpassed Charter Communications (NASDAQ:CHTR) and trails only AT&T (NYSE:T) and Comcast Corporation (NASDAQ:CMCSA).
Again, this is a high-risk play but it’s also a high-reward opportunity.
Margins in the platform segment are very attractive and should allow Roku to turn profitable relatively quickly. International markets remain largely untapped. There’s a case for waiting for a better entry point, or selling puts. But I like ROKU at these levels for the growth/high-risk portion of an investor’s portfolio.
Past year performance: -37%
Down 17% over the past year, Brunswick Corporation (NYSE:BC) is due for a breakout. The boat, engine and fitness equipment manufacturer is trading around $43, and despite a boating sector that has roared of late, the industry leader has been mostly left out.
Efforts to build out a fitness business have had mixed results and may support some of the market’s skepticism toward the stock. But Brunswick now is spinning that business off, returning to be a boating pure-play.
Cyclical risk is worth noting, and there are questions as to whether millennials will have the same fervor for boating as their parents. But at a nine times forward EPS, with earnings still growing double-digits, BC is easily worth those risks.
And if the stock finally can break through resistance, a breakout toward $70-plus seems likely.
Past year performance: 18%
Few investors like the pharmaceutical space at this point or even healthcare as a whole. But amidst that negativity, Pfizer Inc. (NYSE:PFE) looks forgotten.
This still is the most valuable drug manufacturer in the world. It trades at just 13 times forward EPS, a multiple that suggests profits will stay basically flat in perpetuity. To top it off, PFE offers a 3.36% dividend yield.
Obviously, there are risks here. Drug pricing continues to be subject to political scrutiny (though the spotlight seems to have dimmed of late). Revenue growth has flattened out of late.
But Pfizer still is growing earnings, with adjusted EPS rising 1.3% last year and guidance suggesting a similar increase this year. Tom Taulli previously cited three reasons to buy Pfizer stock — and I think he’s got it about right.
Valmont Industries (VMI)
Past year performance: -23%
Valmont Industries, Inc. (NYSE:VMI) offers a diversified portfolio business and has been relatively weak across the board of late. The irrigation business has been hit by years of declining farm income. Support structures manufactured for utilities and highways have seen choppy demand due to uneven government spending. Mining weakness has had an impact on Valmont’s smaller businesses as well.
Valmont is a cyclical business where the cycles simply haven’t been much in the company’s favor. Yet that should start to change. 5G and increasing wireless usage should help the company’s business with cellular phone companies.
Irrigation demand almost has to return at some point. And a possible infrastructure plan from the Trump Administration would benefit Valmont as well.
Concerns about the tariffs on steel likely have hit VMI, and sent it back to support below $150. But many of Valmont’s contracts are “pass-through,” which limits the direct impact of those higher costs on the company itself. Despite uneven demand, EPS has been growing steadily and should do so in 2019 as well.
And yet VMI trades at an attractive 16x multiple — a multiple that suggests Valmont is closer to the top of the cycle than the bottom. That seems unlikely to be the case, and as earnings grow and the multiple expands, VMI has a clear path to upside.
American Eagle Outfitters (AEO)
Past year performance: -28%
American Eagle Outfitters (NYSE:AEO) is one of the, if not the, best stocks in retail, and that’s kind of the problem. Mall retailing, in particular, has been a very tough space over the past few years, and it’s not just the impact of Amazon.com, Inc. (NASDAQ:AMZN) and other online retailers. Traffic continues to decline, which pressures sales and has led to intense competition on price, hurting margins.
But American Eagle has survived rather well so far, keeping comps positive and earnings stable. And yet this stock, too, trades at around 13.6x EPS, backing out its net cash. And American Eagle has an ace in the hole: its aerie line, which continues to grow at a breakneck pace.
The company’s bralettes and other products clearly are taking share from L Brands Inc (NYSE:LB) unit Victoria’s Secret. And the ecommerce growth in that business, and for American Eagle as a whole, suggests an ability to dodge the intense pressure on mall-based retailers.
In short, American Eagle isn’t going anywhere. There’s enough here to suggest American Eagle can eke out some growth, and a 3.14% dividend provides income in the meantime.
The stock already is recovering, being one of the only on this list with a positive chart over the past year, and AEO stock should continue to perform well. Longer-term, there’s still room for consistent growth and more upside.
United Parcel Service (UPS)
Past year performance: -16%
United Parcel Service, Inc. (NYSE:UPS) is going to have to spend to add capacity, and in this space, too, there’s the ever-present threat of Amazon.
But UPS is an entrenched leader, along with rival FedEx Corporation (NYSE:FDX), and it at worst can co-exist with Amazon. Ecommerce growth overall should continue to increase demand; there’s enough room for multiple players in the global market.
Meanwhile, the selloff and benefits from tax reform mean that UPS now is trading at just 13 times analysts’ 2019 consensus EPS estimate. And the stock yields a healthy 3.44%. Investors clearly see a risk that growth will decelerate, but UPS stock is priced as if that deceleration is guaranteed.
As of this writing, Vince Martin is long shares of Exxon Mobil. He has no positions in any other securities mentioned.