Not all stocks are created equal. The proof lies in their trading record this year. That has created some screaming buys elsewhere in the market. These are stocks to buy now and in the future on a further dip.
Consider this.
The Nasdaq is up roughly 30% so far on the year and the S&P 500 is up roughly 15%. However, the Dow Jones Industrial Average and Russell 2000 are up just 2% and 5%, respectively.
Outside of mega-cap tech — which has been driving the gains in the Nasdaq and the S&P 500 — broad participation has been lacking. Although those measures have shown improvement, it’s left many stocks out of favor. That’s despite many names being of high quality with strong businesses.
Let’s look outside of tech to find some stock market opportunities and search for stocks that are screaming buys.
Screaming Buys (on a Dip): PepsiCo (PEP)
PepsiCo (NYSE:PEP) is a well-known, blue-chip name that investors have come to depend upon over the years. Shares recently hit all-time highs in mid-May, but the stock has struggled for upside traction since.
The stock pulled back about 9%, bounced, and is now starting to see some more selling pressure. Will PepsiCo retest the lows? I don’t know, but if it does it will be one of the screaming buys on many investors’ watchlists.
The stock currently pays out a 2.75% dividend yield. That dividend has not only been paid, but has been raised for 51 consecutive years. Most recently, management raised the dividend by 10% in May.
Estimates call for mid-single-digit revenue growth this year and next, alongside high-single-digit earnings growth both years as well. PepsiCo is about as consistent as they come — whether that’s revenue growth, earnings power, or the dividend.
The firm clearly dominates in the food and beverage space, and it’s become a solid buy-the-dips candidate.
Stocks to Buy Now: Ulta Beauty (ULTA)
Ulta Beauty (NASDAQ:ULTA) was one of the top retail stocks through late 2022 and much of 2023. Unlike tech, retail stocks have badly struggled for most of this year. However, Ulta was a standout exception.
From the October low to the recent high, shares rallied almost 50%. Amid the move, it strung together seven straight monthly gains and hit all-time highs.
Then the stock began a pullback going into earnings, and fell more than 13% in a single session after the report. Shares ultimately suffered a peak-to-trough decline of almost 28%. All this for a stock that gave a slight boost to its prior revenue outlook (although it was still a bit short of consensus expectations) and provided a minor trim to its margin outlook while maintaining its earnings outlook.
This hot stock has fallen out of favor. If we retest the recent lows, the valuation may be too compelling to take a pass on again.
High-Risk, High-Growth Stocks: PagerDuty (PD)
PagerDuty (NYSE:PD) is a high-risk, high-growth stock. However, it’s not a high-risk stock in the sense that most investors assume. Instead, this name continues to show relative weakness at a time where many growth stocks are hitting multi-week and multi-month highs. This risk isn’t related to the business, but rather, a lack of demand for its stock. If growth names fall out favor in Q3, it’s hard to imagine PD stock performing well.
Despite having a great product, the company lacks a strong salesforce. I say this because the company’s dollar-based net retention (or DBNR) has been so strong, yet management had to trim its revenue outlook. According to the company, “For more than two years, we have consistently achieved dollar-based net retention (DBNR) above 120%”.
On June 1, the company delivered a top- and bottom-line beat, but its outlook disappointed investors. That has the stock down about 37.5% from the recent highs and up just 13% from the fourth-quarter low at a time when many growth stocks are gaining momentum.
That said, forecasts for the firm are strong, and the company has swung to profitability as it continues to gain momentum in its business. An upside surprise and/or a better-than-expected outlook could get this stock back in the bulls’ favor in a hurry.
On the date of publication, Bret Kenwell 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.
