As companies wrap up their third-quarter earnings announcements, things are looking up for many market sectors.
In a recent issue of Smart Money, my team outlined the many reasons to be optimistic going into 2023. Better-than-expected earnings and even the midterm election cycle have us looking at 2023 in a positive light.
With holiday buying ramping up and being in the midst of Black Friday and Cyber Monday, I thought I’d revisit a couple of cheap stocks I’ve been watching throughout 2022.
So if your holiday bargain hunting includes buying the dip and diversifying your portfolio, take a look at these stocks…
No. 1: Coty Inc. (COTY)
Coty is a mix of prestige and consumer beauty brands that include an array of celebrity-fronted products by Kim Kardashian, Kylie Jenner, David Beckham, and Katy Perry.
And despite being the No. 1 fragrance company, it hasn’t been immune to the struggle of the last few years.
But the company took on a new CEO, beauty industry veteran Sue Nabi, back in 2020, and it seems the corporate plan she laid out is now finally taking hold. Nabi’s plan was to slash debt and increase revenue and profit growth – the company has done that and more.
In the third quarter of 2022, Coty’s prestige cosmetics revenue was up 21%, while consumer beauty was up 8%, surpassing most estimates.
While it’s on the upswing, the company does face global headwinds, like shutting down its Russian operations and the ever-present threat of COVID lockdowns in China.
Risks remain, of course. But the company’s turnaround seems to have taken root… and as it blossoms, Coty should establish a strong, long-term growth trend.
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No. 2: Nokia Corp. (NOK)
Perhaps the name harkens memories of flip phones and minute limits, but Nokia has grown into a leading 5G play that continues to grow its top and bottom lines.
Nokia has directly benefited from the 5G rollout and is likely on the verge of explosive growth as a result. The so-called “Huawei ban,” in which Nokia’s major Chinese competitor has been banned from doing business in the U.S., has bolstered Nokia’s influence stateside as well.
Nokia has also enjoyed the spoils of a what I call “deglobalization.”
The United States, the European Union, and several other countries have taken decisive new steps to shift supply chains from China to domestic companies, or at least non-Chinese companies.
Now that Huawei has become an outcast in the United States because of its alleged spying activities on behalf of the Chinese government, Nokia is another competitor set to benefit from its banishment.
Its third-quarter earnings were encouraging – the company reported improved quarterly revenue of 16% year over year when it reported a month ago. Most of the company’s segments grew, including Mobile Networks, Network Infrastructure, and Cloud and Network Services. Q3 also marked the eighth consecutive time it’s beaten analyst estimates.
As a darling of the 5G expansion, deglobalization benefactor, and consistent profit maker, NOK is a great bargain.
No. 3: Arcos Dorados Holdings Inc. (ARCO)
Spanish speakers will know that Arcos Dorados translates to “golden arches.” This up-and-coming buy is a franchisee of McDonald’s, operating restaurants in Central and Latin America and the Caribbean.
Earnings for Q3 were up 27% year over year, and net income was up a whopping 90%. The company’s accelerating revenue and net profit has enabled it to slash its net debt burden from a whopping 11 times gross profit (EBITDA) in early 2021 to less than four times today.
Also, keep in mind that Arcos owns the land under about 500 of its restaurants, and that’s worth more than its net debt. Steady profits and solid assets are two reasons to keep this stock in mind when buying the dip.
There’s always a chance that none of these companies will end up winners in 2023. But they are poised to be great additions to your shopping bags this holiday season.
As I said in a recent Fry’s Investment Report,
I believe we have drawn close to that critical inflection point – the moment when we investors should stop selling the rumor… and begin buying the fact…
To be sure, investing during a deep bear market is a messy, chaotic, and nerve-racking endeavor. But these gut-wrenching moments are the ones that provide outstanding gains… eventually.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.