Another Updraft Is Forming For The Market Melt-Up
Looking back, in hindsight, it’s easy to see how the February and March correction was driven by not just one factor, but by a domino effect of compounding factors. The COVID-19 panic was the spark that lit the fire. It was a combination of economic and earnings outlook that led to lower stock market valuations and potential returns for investors that tanked stock prices. Within that was a fear that many companies wouldn’t survive, and that for some, survival meant cutting dividend payments.
Now, with the market melting up to new all-time highs that same combination is working in reverse. First, the 2nd quarter recession was not as bad as first feared. Second, the rebound was quicker and far more robust than many had expected. Fourth, the outlook for recovery is still strong, with the GDPNow tracking at 28% what else can you call it? And finally, some of the companies less well-positioned for the pandemic, those that felt the need to suspend their payments, are emerging from the crisis in good condition and reinstating the distribution. And their shares are poised to move higher.
La-Z-Boy Is A Fortress Of Comfort
La-Z-Boy (NYSE:LZB) is a great example of what prudent and timely managerial actions can have on a company. Execs issued a broad array of cost-cutting and cash saving measures in late March that included suspending the dividend and those efforts paid off. The company was able to leverage the savings, increase earnings power, and maintain its fortress-like balance sheet while waiting for the rebound and the rebound is on. Now, with sales projected to grow double digits in the current and coming quarters, it was right to bring back the payment. The only negative is the yield, about 0.85%.
The newly declared payout is only half what it was the last time it was paid but that’s OK. The balance sheet and available cash flow more than support the idea of future increases and they could come as soon as the following quarter.
The news was enough to spark interest in the stock that has it poised to move higher but there is still some risk. Price action is wedged between a support and resistance level that could keep it in check over the next few weeks. A move above resistance at the $34 level would be the trigger to buy.
Foot Locker Is Making A Comeback
Foot Locker (NYSE:FL) was not immune to the COVID-19 virus for one simple fact, it relies on brick&mortar locations to do most of its business. Results in the first quarter of the year were not good. That said, the company saw a nice rebound in sales that are underpinned by its eCommerce business.
Regarding the second quarter, Foot Locker was able to deliver a stunning 18% increase in comps that beat the consensus estimates on the top and bottom lines. And that includes the negative impact of product-mix shifting to eCommerce and the slightly narrower margins that come from it. Regardless, the results were more than enough to assure the board that business was recovering and a “cautious” reinstatement of the dividend would be appropriate. Looking at the numbers, this is another payment we can expect to get increased later this year or early next. Until then, investors can rely on the 2.0% yield and sleep well at night.
On a technical basis, this stock hasn’t made quite the recovery that some others have and I think that is good news. With shares lagging the market and business conditions improving shares of Foot Locker are incredibly undervalued. Trading at only 7X next year’s earnings there is plenty of room for this stock to run higher. Support appears to be pretty firm at the $28 so a cautious entry is not unwarranted here. For more cautious traders, a break above the $31 would be the more-bullish trigger for entry.
Dick’s Sporting Goods Cut The Dividend, But Then Paid Anyway
Dick’s Sporting Goods (NYSE:DKS) is perhaps the best story of all when it comes to the dividend. The company suspended its payment for the 2nd quarter and then, because eCommerce and the reopening were so strong, went ahead and paid it anyway. Shares of the stock have trended higher since then and now, with the company slated to report earnings this week, are poised for a breakout. Not surprisingly, the company is expected to deliver YOY revenue growth in the range of 8%. If Dick's reports consistently with its peers it will smash the consensus and there is no evidence it won't.
Looking at the charts, shares of Dicks are trading at the top of a Vee-bottom recovery and just below the pre-COVID highs. Resistance is at the $48.00 but price action looks bullish and is supported by the indicators so it may not hold up. A break above this level would confirm the Vee-Bottom reversal and set the stock up to continue a rally that had been forming way back at the beginning of the year. Dick’s yields about 2.75% and comes with a high expectation of future increases.
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7 Great Biotech Stocks That Don’t Depend on a Coronavirus Cure
Biotech stocks are some of the most volatile for investors to include in their portfolio. And that volatility can be hard to predict. Biotech companies don’t have a firm correlation with the overall economy. And what can add to the challenge is that many of these companies are small-cap companies that are not well-known names.
These small biotech stocks may shoot higher based on a vaccine or drug candidate that gets national attention. But these small-cap stock also reflect the adage of letting the buyer beware. The stark reality for many investors is that the vast majority of these treatments never make it past clinical trials, and that means that a stock that goes up rapidly can move down just as fast.
We’re seeing that right now with the multitude of companies competing in the race towards a vaccine and/or treatment for Covid-19 and the novel coronavirus that causes the disease. And if you’ve been good at timing the market, you could have made some good money on some of these candidates.
Of course, if you held the stock too long, you could have lost your shirt as well.
That doesn’t mean. However, that buy and hold investors should avoid the biotech sector altogether. There are still some attractively priced small-cap biotech companies working on treatments for a range of conditions that provide them with a large addressable base. And we’ve identified seven of these stocks in this special presentation.
View the "7 Great Biotech Stocks That Don’t Depend on a Coronavirus Cure".