As the stock market adage goes, a rising tide lifts all boats. As we’ve learned in recent days, unfortunately, the opposite is also true.
Newfound concerns around the latest coronavirus variant have created broad-based weakness in U.S. equities. Early pandemic winners and vaccine plays have been exceptions, but most stocks have faced selling pressure.
It remains to be seen how the Omicron crisis develops. In the meantime, what we do know is that many stocks have become more affordable, if not cheap.
And with the holiday shopping season upon us, some of the most intriguing buying opportunities may be in retail. Like other industries, retailers have been plagued by supply chain issues and the potential impact of Omicron hasn’t helped.
Some retail companies may go back into survival mode, while others are likely to outperform in the current environment. Here are three likely outperformers whose shares are on sale.
Is the Dip in MercadoLibre Stock a Buy Opportunity?
MercadoLibre (NASDAQ: MELI) is one retailer that doesn’t have to fret about the potential for slower foot traffic. The so-called “Amazon of Latin America” operates a leading e-commerce site south of the border with a particularly strong presence in Brazil (which accounts for more than half of total revenue).
This year MercadoLibre’s sales are on pace to be up 75% and profitability will be restored after 2020’s breakeven bottom-line performance. The outlook for 2022 is also strong. Analysts are forecasting a 36% sales increase and for earnings per share to more than double to record levels. In addition to strength in the core Marketplace business, the fast-growing MercadoPago FinTech platform and the MercadoEnvios logistics segment are expected to make healthy sales contributions.
MercadoLibre stock will close November on a three-month losing streak for the first time since 2019 amid margin concerns and the potential for an economic slowdown in its key markets. After climbing above $2,000 at the start of the year, it is trading near $1,200. The Street remains unanimously bullish on MercadoLibre. The five firms that reiterated buy ratings this month have price targets of either $2,100 or $2,200. This one has ‘buy the dip’ written all over it.
Is Best Buy Stock Oversold?
Best Buy (NYSE:BBY) is another retailer having a holiday stock sale. It has dropped 25% from the November 22nd peak creating a bargain buy for a company with a positive long-term outlook.
Staging a classic hockey stick-shaped rally once the calendar hit October, Best Buy could seemingly do no wrong. Then third-quarter earnings came along. While profits exceeded expectations, a weak fourth-quarter outlook spooked investors causing a high volume gap down. Making matters worse, Best Buy became the latest retailer to be hurt by organized theft activity that is weighing on profit margins and making it harder to retain already hard to find workers.
But there’s a light at the end of the tunnel here. In the near-term, inventory challenges and pressure to reduce prices could indeed make the holiday period results less than joyous. Higher expenses to ward off theft through security additions and technology won’t help.
The good news, however, is that Best Buy doesn’t have a demand problem and in fact it’s a major strength. Hearty consumer spending should continue to drive strong sales both at stores and online. That’s why management raised its outlook for 2022 although this got lost in the shuffle.
Best Buy shares are trading at 12x next year’s earnings compared to 20x for the S&P 500. Sell volume is slowing and oversold conditions are setting in. The downside is limited and the upside high for Best Buy shareholders.
Is Children’s Place Stock Undervalued?
Children’s Place (NASDAQ:PLCE) stock is up 70% this year, but down 25% from its November peak. The baby and youth clothing retailer has been dragged lower with the rest of the retail group and doesn’t have any major company specific problems to contend with.
In fact, a restructuring and an increased digital focus has Children’s Place on an outperformance streak. Last quarter it topped earnings expectations for the fourth straight time and management noted a good start to the all-important fourth quarter. Next year operating margins are expected to expand, and profitability build off an outstanding 2021.
So, the downward pressure on Children’s Place stock is very much macro related. This is a good thing as it has made the stock an attractive mid cap value play at 8x forward earnings.
Since the Q3 update sell-side firms have stayed bullish on Children’s Place as a long-term investment on the American consumer and demand for high margin children’s apparel. Three analysts have called the $84 stock a buy with price targets in the $130 to $139 range. Even Citigroup’s more cautious hold rating and $115 target points to significant upside. Children’s Place is a great place for value investors to shop this holiday season.
Before you consider Children's Place, you'll want to hear this.
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