Growth At A Reasonable Price

It’s been a much better year thus far for the major market averages, and several tech names have soared more than 30% off their lows just seven weeks into the year after coming into 2023 at deeply oversold levels.

Although this has been a nice move for those quick enough to establish positions, there are far less attractive setups out there currently, and one must be rigid with their stock selection.

In this update, we’ll look at one semi recession resistant growth story and another company that continues to gobble up market share that are both worth keeping at the top of one’s watchlist if we see a deeper market correction.

Visteon Corporation (VC)

Visteon Corporation (VC) is a $4.6 billion company in the Auto-Truck and Original Equipment industry group and is a global automotive electronics supplier that was spun out from Ford Motor Company (F) in April 2000.

Visteon Corporation differentiates itself from its auto parts peers given that it is the only pure-play supplier of automotive cockpit electronics, the fastest-growth segment within the industry.

For those unfamiliar, the segment is forecasted to grow from $36 billion to $60 billion in 2027, and this incredible growth showed up in Visteon’s most recent Q4 results, with revenue up 35% to $1.06 billion, well above the low double-digit sales growth reported by peers in the same period.

On a full-year basis, Visteon had an incredible year, launching 45 new products (13 in Q4 alone), nailing down $6.0 billion in new contracts, and ending the year with a strong balance sheet, evidenced by $174 million in net cash.

This certainly showed up in its financial results, with record revenue of $3.76 billion (40% growth year-over-year) and 153% annual EPS growth ($5.33 vs. $2.11), a new record for the company.

However, while this is incredible growth relative to FY2020 levels ($2.77) the forward outlook is just as impressive, with annual EPS expected to increase to $9.98 in FY2024, pointing to nearly 90% growth over the next two years. Continue reading "Growth At A Reasonable Price"

Two Growth Stocks to Buy on Dips

It’s been a volatile year for the major market averages, and the S&P-500 (SPY) has now corrected over 27% from its highs, suggesting we’ve seen the majority of the downside short-term.

This is based on the average recessionary bear market coming in at 34% and the S&P-500 now satisfying 80% of the average decline’s magnitude.

One of the most beaten-up areas of the market has been growth stocks, and with elevated pessimism finally increasing the likelihood of a short-term market bottom, this is the ideal time to be hunting for new ideas.

Unfortunately, not all stocks are created equal. While many growth stocks might be oversold, those still posting net losses per share and carrying high debt levels are extremely risky in a rising-rate environment.

However, for investors willing to dig through the rubble, two names stand out as extremely attractive, trading at significant discounts to fair value despite boasting strong earnings trends. In this update, we’ll look at two stocks that are solid buy-the-dip candidates:

Boot Barn (BOOT)

Boot Barn (BOOT) is a small-cap growth stock in the Retail/Apparel industry group that has enjoyed near triple-digit sales growth, increasing revenue from $180MM in fiscal Q1 2020 to $299MM in fiscal Q1 2023.

This has been accomplished by industry-leading same-store sales growth rates and continued unit growth (73 new stores opened), which is supported by the company’s continuously improving unit economics. For example, the company’s average sales per square foot have improved from a prior target of $170/square foot to over $400/square foot, increasing its payback period from three years to one year for new stores.

At the same time as sales have continued to increase at double-digit levels and it’s grown its store count to 330, the company has enjoyed growth in exclusive brand penetration, providing a significant boost to annual earnings per share.

This is because its private-label brands carry much higher margins, allowing BOOT to nearly quadruple annual EPS from FY2020 to FY2022 ($6.18 vs. $1.55). These are phenomenal growth rates, and with plans to grow its store count by over 12% this year, this growth story is still in its early innings.

Unfortunately, the stock has been crushed year-to-date (down 56%) due to the negative sentiment for the Retail Sector (XRT) and the company’s lukewarm comments in fiscal Q2 2023 guidance. Continue reading "Two Growth Stocks to Buy on Dips"

Two Growth Stocks With Relative Strength

It’s been a volatile month thus far for the S&P-500 (SPY), with the index starting the month up nearly 5% before giving back all of its month-to-date gains.

This sharp reversal should not be surprising, given that the 200-day moving average is often a strong area of resistance for the general market when it’s in an intermediate downtrend.

From a fundamental standpoint, the give-back also makes sense, given that little has fundamentally changed with the Federal Reserve still laser-focused on stamping out inflation, regardless of the collateral damage caused by its hawkish stance.

SPX August

(Source: Twitter, ND Wealth Management, Steve Deppe)

Given the weak performance, the market is now on track to close August down more than 10% year-to-date, which has historically led to further drawdowns in all cases. In fact, the median forward draw-down over the following twelve months was 15.5%, and even using the best four case drawdowns, the average twelve-month forward draw-down was 5.5%.

History doesn’t repeat itself, but it often rhymes, and assuming the S&P-500 closed at 4000 for August, this would point to a drawdown to 3380 between now and summer 2023, or a best case drawdown (average of four smallest draw-downs) to 3780. With even the best-case scenario points to a meaningful downside, caution remains warranted.

The good news is that it’s a market of stocks, not a stock market. Even in intermediate bear markets, investors can enjoy alpha by hunting down the best growth names that exhibit unique relative strength characteristics.

With many FAANG names down over 50%, finding stocks in intermediate uptrends is challenging, but there are a few stand-out names that also have impressive growth metrics. This combination is a recipe for success in all markets, and in this update, we’ll look at two names that fit this bill: Continue reading "Two Growth Stocks With Relative Strength"