Chicago, IL – July 1, 2024 – Today, Zacks Investment Ideas feature highlights Lululemon LULU, Nike NKE, Ulta Beauty ULTA and ON Semiconductor ON.
3 Great Stocks to Buy on the Dip for July
Today’s episode of Full Court Finance at Zacks dives into where the market stands heading into July and the second half of 2024. The episode then explores three hard-hit S&P 500 stocks trading at least 30% below their highs that investors might want to buy on the dip to start the third quarter.
The stock market’s boring two-day stretch on Wednesday and Thursday came after the S&P 500 and the Nasdaq bounced back on Tuesday to end a three-session skid.
The Nasdaq found buyers before it had to test its 21-day moving average. The question is whether the bulls race to fresh highs before the start of Q2 earnings season, or take more profits heading into the Fourth of July?
Thankfully, no matter what happens in the near term, the Wall Street bulls have the two biggest driving forces propelling them forward: earnings growth and rate cuts.
Investors should focus on taking advantage of the next market pullback whenever it comes and look for strong stocks that have already been punished for fading earnings outlooks and other near-term headwinds in the first half of 2024.
Lululemon
Lululemon has tumbled 40% in 2024 for the worst performance in the S&P 500. Wall Street is worried about slowing growth in a key demographic amid challenges from rivals Alo and Vuori and changing fashion trends. The athleisure firm is coming up against a very difficult to compete against stretch of growth and the law of large numbers means its YoY expansion won’t look as impressive.
These are real concerns and LULU’s outlook showcases significantly lower sales and EPS growth. But Lululemon averaged 25% sales expansion in the past five years and grew its adjusted EPS by 27% last year and 30% in 2022. Lululemon is projected to post 11.4% revenue growth in FY24 and 10% higher sales next year to boost its adjusted EPS by 12% and 10%, respectively.
Lululemon is set to make up for slowing growth in its U.S. women’s segment by doubling men’s and e-commerce and quadrupling international sales between 2021 and 2026. Lululemon’s margins remain almost unmatched in the non-luxury apparel space. On top of that, LULU’s FY24 and FY25 earnings estimates remain above where they were 12 months ago.
LULU has climbed 660% in the past 10 years to blow away the S&P 500’s 190%, Nike’s 140%, and its industry’s 18% downturn. Yet, Lululemon trades 40% below its peaks in terms of price and at a 70% discount to its highs at 20.5X forward earnings, which is near its decade-long lows.
Lululemon appears to be finding support around its lows over the last four years while trading at historically oversold RSI levels. Plus, it has no debt and boosted its stock buyback program by $1 billion.
Ulta Beauty
Ulta Beauty is the largest specialty U.S. beauty retailer. The firm reshaped the industry over the last 30-plus years by bringing the entire cosmetic and beauty space under one roof. Ulta sells an array of brands across multiple areas and price points from higher-end companies to its store brands.
Ulta operates roughly 1,400 locations across the U.S. Ulta’s e-commerce offerings have gained traction and it’s benefitting from growth in how-to-style videos, tips, and tutorials across social media and beyond.
Ulta shares soared off their Covid lows until they tumbled between May 2023 and October 2023. Ulta went on another massive boom and bust run that sent it to fresh highs in March 2024.
The stock has plummeted 33% since then, driven lower by slowing comparable sales growth as consumers pullback on spending. Ulta’s lower-income shoppers are being hit hard by inflation and are fading after several years of blowout spending.
Ulta’s consensus earnings estimates for FY24 and FY25 are down just 3.5% over the last year. On top of that, beauty is historically resilient during economic uncertainty when people choose to spend money on the little things. Ulta is projected to post 3% revenue growth in FY24 and 6% higher sales next year, while its adjusted EPS dips slightly this year and jumps 11% higher next year.
Ulta shares are up 13% in the last three years vs. the Zacks Retail sector’s 7% drop. This is part of a 300% run in the last decade to destroy the benchmark and its sector. Ulta trades 32% below its highs and 25% under its average Zacks price target.
Ulta appears to be finding support at its lows over the last three years as it hovers just below its 200-week moving average and at historically oversold levels. Ulta also trades at a 60% discount to its highs and 35% below its sector at 14.4X forward earnings (lowest levels outside of the Covid selloff).
ON Semiconductor
ON Semiconductor operates in the important but less flashy analog segment of the chip industry. ON Semiconductor’s solutions play key roles in the industrial and automotive markets.
ON has thrived in the connected vehicle world and expanded on the back of EVs, energy storage, solar energy, and much more. “As power continues to play a critical role in the world’s increasing energy demands, efficiency is paramount, and we are positioned to continue to gain share with our portfolio of industry-leading power and sensing technologies,” CEO Hassane El-Khoury said last quarter.
ON Semiconductor has been rocked by a cyclical downturn across the industrial and automotive sectors. ON’s fiscal 2024 earnings estimate has tumbled 24% over the last 12 months, with its FY25 outlook 17% lower.
ON Semiconductor’s adjusted FY24 earnings are projected to fall 26% YoY on 13% lower sales. This downturn isn’t uncommon in the historically cyclical industry, and ON is projected to post 10% revenue growth next year and 27% higher adjusted EPS.
ON Semiconductor shares have fallen around 37% from their 2023 peaks. ON is down 25% over the last year vs. Tech’s 40% run and the Zacks Semiconductor market’s 110% AI-fueled boom. The recent divergence means ON lags firmly behind the chip industry over the past 10 years. Still, its 630% run nearly doubles the Tech sector.
ON trades around where it was in late 2021 and 24% below its average Zacks price target. ON Semiconductor trades between its 21-month and 50-month moving averages and below neutral RSI levels. ON stock trades 40% below its highs, 60% below the chip industry, and at a 45% discount to the Zacks Tech sector.
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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
