- PulteGroup (PHM): Robust home demand and strong labor market bring tailwinds for this cheaply valued homebuilder.
- Ford Motor (F): Moderate top-line growth, strong execution, and expansion to the Chinese market are long-term opportunities for Ford stock.
- Mastercraft Boat (MCFT): With profitability taking a boost, MCFT’s stock outperformance is set to endure in the next quarters.
- BIC (BICEF): Low valuation multiples and double-digit profit margins bode well for this product disposable specialist.
- Goodyear Tire & Rubber (GT): The profitable tire and rubber company trades at a large discount compared to its book value and is expected to rebound in 2023.
- Malibu Boats (MBUU): A strong boat demand and enhancing top and bottom lines offer substantial upside.
- GoPro (GPRO): After turning a profit last year, the action-camera expert is set for further gains following its year-to-date underperformance.
Consumer discretionary stocks underperformed the equity market year-to-date (YTD), due to the higher sensitivity of the sector to a gloomy economic business cycle. Consumer discretionary stocks are businesses delivering non-essential products or services that are more likely to be reduced or postponed during tough economic times.
Since the beginning of the year, the iShares Consumer Discretionary ETF (NYSEARCA:IYC), measuring the performance of non-essential stocks, decreased 14.98% to $72.51 per share. The sector has moderately underperformed the broader equity market, as measured by the SPDR S&P 500 Trust ETF (NYSEARCA:SPY), which is down 8.3% YTD to $438.06 per share.
With interest rates rising, inflation reaching fresh highs, and geopolitical tension amplifying, the sluggish macroenvironments threaten consumer discretionary stocks.
However, out of all the stocks in this sector, there are a few companies with constructive financials that are set to rebound in April, after the steep YTD correction:
|GT||Goodyear Tire & Rubber||$13.52|
PulteGroup (NYSE:PHM) is the third largest U.S. homebuilding company with exposure to mortgage banking and insurance brokerage operations. Since the beginning of the year, PHM stock lost 22.78% to $43.31 per share, underperforming broadly the consumer discretionary sector.
Rising interest rates make it more expensive for homebuyers to finance their purchases. Yet, on the demand side, the labor market remains strong, amid rising wages and a low U.S. unemployment rate. Demand seems, for now, to overtake these challenges, and PulteGroup’s financials are expected to enhance in the next years. Net sales are projected to advance 19.2% year-on-year to $16.6 billion, whereas net profit is estimated to jump 29.7% to $2.52 billion, representing a net margin of 8.6%.
More importantly, PHM stock should turn net cash positive this year, posting a net position of $719 million versus net debt of $195 million in 2021. This consumer discretionary stock is also forecasted to expand free cash flows, up 134.7% to $2.18 billion in 2022.
While the stock has been beaten down in the past months, PHM stock trades at an attractive price, posting a 2022e enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) of only 2.71x and a forward price-to-earnings (P/E) ratio of 4.19x. Moreover, analysts offer a moderate buy rating on the homebuilder and expect an upside of 38% in the next twelve months and give a target price of $59 per share.
Ford Motor (F)
Ford Motor (NYSE:F) designs, manufactures, markets, and services a full line of connected, increasingly electrified passenger and commercial vehicles, including trucks, utility vehicles, vans, cars, and Lincoln luxury vehicles. After a strong yearly stock performance of 31.49%, F stock declined 27.88% YTD to $15.7 per share.
Recently, F stock disappointed investors, after the announcement of sluggish vehicle sales in China, down 18.8% year-on-year to 125,000 units, due to continued semiconductor shortages and resurgent pandemic-related restrictions.
Despite this hiccup, Ford’s top-line growth is projected to advance 14.4% to $144.2 billion in 2022 compared to just 8.9% last year. On the other hand, net income is estimated to plunge 60.1% to $7.16 billion, shrinking profit margins threefold to 4.96% per year. Still, F stock showed a strong execution in the past seven quarters, beating earnings per share estimates six times.
F stock is on a recovery path, which should continue to sustain its share in the medium term. The car marker has a strong balance sheet, with a net cash position of $16.08 billion at the end of 2021. Besides, the company exchanges at cheap valuation metrics of 2.96x 2022e EV/EBITDA and 8.52x forward P/E.
The momentum is bearish on F stock, however, analysts give the carmaker a moderate buy rating and offer an average target price of $20.62 per share in the next twelve months, or a 39.61% appreciation potential.
Mastercraft Boat (MCFT)
Mastercraft Boat (NASDAQ:MCFT) is a leading innovator, designer, manufacturer, and marketer of recreational powerboats through its four brands, MasterCraft, NauticStar, Crest, and Aviara. MCFT stock dipped 12.76% YTD to $24.62 per share, outperforming slightly the IYC stock.
Mastercraft Boat beat earnings per share and revenue estimates in the last seven quarters, demonstrating a strong execution. The consumer discretionary stock is on a growth trajectory. After growing rapidly, up 44.9% to $526 million in 2021, net sales growth is projected to slow this year, up 24.7% year-on-year to $656 million. MCFT profitability is however expected to enhance, with net profits advancing rapidly, up 32% to $742 million, offering a vigorous profit margin of 11.3%.
With these constructive developments, the shares of the boat company should continue to attract interest. Besides, MCFT has cheap valuation multiples, trading at only 3.92x forward EV/EBITDA and 6.26x 2022e P/E. Moreover and despite MCFT’s stock weakness, analysts remain positive on the company, offering an average target price of $43.50 per share, a 79% upside from today’s price.
BIC (OTCMKTS:BICEF) is one of the world’s leading manufacturers and distributors of stationery products, lighters, and shavers. BICEF stock lost 13.07% YTD to $49.10 per share and is down 31.81% in the past year.
The company published strong 2021 results and expects full-year 2022 sales to grow between 7% and 9% at constant currencies. Top-line grew at a double-digit rate in 2021, up 12.5% to €1.83 billion and the consensus of analysts estimates an expansion of 8.2% in 2022 to €1.98 billion. On the other side, the top line dipped 66.5% in 2021 and should decrease by another 35.7% this year to €202 million, offering a net margin of 10.2% per year.
Nevertheless, BIC’s balance sheet is in good shape, with a net cash position of €400 million at the end of 2021, estimated to lift 11.7% in 2022 to €447 million. The consumer discretionary stock offers attractive profitability and trades at low multiples. Indeed, BICEF’s forward EV/EBITDA stands at only 4.17x and 10.7x 2022e P/E. Besides, the average target price offered by Wall Street analysts is $74.55 per share, representing an appreciation of 41% in the next twelve months.
Goodyear Tire & Rubber (GT)
Goodyear Tire & Rubber (NASDAQ:GT) is engaged in developing, manufacturing, marketing, and distributing tires for various applications. GT stock took a beating this year, plunging 37.92% YTD to $13.52 per share.
After registering a strong growth of 41.9% to $17.47 billion in 2021, GT’s net sales are estimated to advance at a slower pace this year, up 18.1% to $20.6 billion. Despite this, the bottom line of the group is projected to decline significantly, down 36.4% to $486 million this year, representing a profit margin of only 2.35%. GT’s net income is however expected to rebound in 2023, up 42.2% to $691, contributing to sustain the long-term growth prospects of the tire specialist.
In terms of the balance sheet, Goodyear’s net debt reached $6.3 billion in 2021, representing a leverage ratio of 3.2x. This year, analysts expected net debt to climb moderately up 6.1% to $6.69 billion, posting a slightly lower leverage ratio of 2.97x. While GT’s leverage is somewhat stretched, the company is expected to increase by 29.8% capital expenditures this year to $1.27 billion, to develop new technologies and products.
Despite that, GT is undervalued at this price, trading at a forward Price to Book (P/B) of only 0.69x and 2022e EV/EBITDA of 4.7x. The upside potential on GT stock stands at 51%, corresponding to an average target price of $19.67.
Malibu Boats (MBUU)
Malibu Boats (NASDAQ:MBUU) is a holding company, engaging in the design, manufacture, and marketing of recreational powerboats. MBUU stock decreased 26.9% since the beginning of the year to $50.94 per share, largely underperforming consumer discretionary stocks.
Demand for MBBU’s boats remained strong in 2021, contributing to the strong results of the company last year. The company has managed to mitigate inflation pressures and supply chain constraints with operational agility, enabling it to outperform the market.
Besides, the financial outlook of MBUU is constructive. Malibu’s top line is expected to advance 23.1% to $1.14 billion in 2022, whilst net income is projected to surge 30% year-on-year to $143 million, offering an enhancing profit margin of 12.5%.
Despite these solid figures, MBBU stock is cheap, exchanging at 4.79x 2022e EV/EBITDA and 7.79x forward P/E. Malibu’s sharp stock correction provides an opportunity for long-term investors, given that there is a potential upside of 85%, according to Wall Street analysts that offer an average target price of $91.80 per share in the next twelve months.
GoPro (NASDAQ:GPRO) GoPro produces cameras and mountable and wearable accessories. GPRO stock decreased 18.15% YTD to $8.73 per share, slightly underperforming consumer discretionary stocks.
After turning a profit last year, the action-camera industry leader, top-line growth is expected to slow down in 2021. Net sales are expected to advance by only 8% to $1.25 billion in 2022, after the rapid expansion of last year, up 30.2% to $1.16 billion. GPRO’s net profit is however projected to dip 70.9% to $108 million, pressuring profit margins to 8.58% per year.
Despite these headwinds, the camera specialist had a comfortable cash position of $290 million in 2021. Besides, the company has beaten earnings per share estimates in the past five quarters and the publication of Q1 2022 results on May 5 might provide support if this trend continues.
In terms of valuation, GoPro stock trades at only 5.78x 2022e EV/EBITDA but has a slightly overstretched P/E ratio of 14.9x. However, analysts offer an upside of 53% on GoPro’s equity story, corresponding to an average target price of $13.17 per share.
On the date of publication, Cristian Docan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.