Trying to guess which direction the market will head in is a difficult task at the best of times. And if things are as volatile as they are now, your guess is probably as good as mine.
Take China, for example. This government is cracking down on tech companies, bailing out their construction giants, putting production shutdown policies, and a host of other things. And with the way supply chains are connected these days, there will of course be an impact on the rest of the world no matter what it does.
China is also the manufacturing hub for so many different things that its decisions to buy or sell raw materials also have a significant impact on global markets. And since we don’t really know if any further action is planned, there will be some China-driven volatility and risk.
Then there is the Fed, which has supported so far. But talks about tapering and rate hikes have escalated, which of course has an impact on sentiment. Especially when companies have to accept lost sales due to supply chain problems and when the inflation of input costs will continue to rise, partly driven by sky-high energy prices. And with all of that in mind, we see inflation rising steadily, temporary as it may be.
The third point concerns the winning season. A good earning season usually boosts the market. But with the supply chains as they were, we could face some negative surprises. Analyst estimates don’t look too bad right now, as the S&P 500’s earnings for the third quarter are set to increase 26.1% year-over-year, with revenue growing 13.8%.
This is nothing to be sniffed at, but it’s worth noting that it follows a 95.3% earnings surge in the second quarter on revenue growth of 25.3%. Hence, while we fail to see the negative surprises that are very likely to exist, it is possible that investors will be disappointed with these results, considering that the supply-side issues have accumulated rather than alleviated as the quarter progressed to have.
And finally, we have COVID, another unimaginable phenomenon. It continues to cause production problems in Asia and consumption problems in the US, although there have been some reports of restaurants holding up.
So this is where we have just gotten to, and while all of these issues are likely to pass, it is better to use a safe strategy if we are to keep buying stocks.
Today’s recommendations are therefore based on large cap safe plays with a steady and rising dividend and solid cash flows to ensure the continuity of the dividend stream.
Zacks key figures such as a Zacks Buy or Strong Buy rank, value and growth values of A or B and an attractive Zacks industry rank describe the security parameter. Estimated earnings growth suggests positive current outlook. The stream of dividends creates returns for investors even when all else fails.
In addition, all of these stocks have an attractive valuation.
Best Buy Co., Inc. BBY
Best Buy is a multinational retailer specializing in consumer electronics, home office products, entertainment software, communications, food preparation, wellness, health, safety, home appliances and related services. The company operates in the United States and Canada.
Zacks Rank # 1 (Strong Buy) stock, with a value and growth index of A, belongs to the Retail – Consumer Electronics industry, which is in the top 10% of the industries classified by Zacks.
The company is expected to increase its profits by 25.9% this year. The dividend yield is 2.65% and the historic 5-year dividend growth is 19.0%.
Valuation multiples of 10.6x earnings and 0.50x sales indicate that investors are undervaluing both sales and earnings.
CH Robinson Worldwide, Inc. CHRW
CH Robinson operates as an asset-light logistics company providing freight transportation services and logistics solutions to companies in a range of industries. It has both individual items and extensive and integrated relationships.
The scope of its activities can be seen in the 19 million consignments that were processed in 2020 and supplied to more than 105,000 customers. This was achieved through 73,000 contracted transport companies, including road transport companies, railways (mainly intermodal service providers), air and sea freight companies.
The Zacks Rank # 2 (Buy) share with value and growth scores of B operates in the transportation and service industries (top 24% of over 250 Zacks classified industries).
Earnings are currently expected to grow by 45.4%. The dividend yield is 2.36%. The dividend has increased 3.5% over the past five years.
The shares are currently trading at a PER of 16.0X and a PER of 0.60X, both of which support an appreciation in share prices.
Deutsche Post AG DPSGY
As one of the world’s largest logistics service providers, Deutsche Post is active in Germany, Europe, America, Asia-Pacific and other regions. The Post-eCommerce-Parcel division offers various postal delivery services; the express department offers time-defined international (TDI) shipments of urgent documents and goods; Global Forwarding transports goods by rail, road, air and sea; the supply chain warehousing, distribution, managed transport, value-added services, supply chain management and consulting services division; The eCommerce Solutions segment offers parcel delivery and cross-border non-TDI services.
The supply chain problems due to port congestion and driver shortages affect the company as much as they do other transportation companies. But the company sees pricing strength that is likely to be a compensating factor in the current environment.
Zacks rank 2 share with value and growth ratings of A is also active in the transportation and services industries.
It is currently expected to increase earnings by 67.0% for 2021. The company’s dividend yield is 1.87% at current stock prices. The dividend has increased 1.0% over the past five years.
The P / E valuation of 13.9X and the P / S valuation of 0.88X indicate upside potential in stock prices.
Steel Dynamics, Inc. STLD
Steel Dynamics is one of the leading steel producers and metal recyclers in the USA. In addition, it is extremely diversified with a wide range of specialty steel products. It currently has a steelmaking and coating capacity of more than 11 million tons.
The Zacks rank 1 share with value and growth ratings of B is active in the steel industry (top 24%).
The company’s profit is expected to grow 431.0% this year. The dividend has increased 15.0% over the past five years and is now 1.78%.
With 3.9 times earnings and 0.92 times sales, stocks are definitely worth considering.
ITOCHU Corp. ITOCY
This is a trading company with domestic trading business in Japan, as well as import and export business. These are textiles, machines, information and communication technology, aerospace, electronics, energy, metals, minerals, chemicals, forest products, general merchandise, food, finance, real estate, insurance, etc.
Zacks Rank # 2 stocks with value and growth scores of A and B, respectively, are active in the retail – other industry (top 40%).
The profit is expected to increase by 69.8% this year. The dividend yield is 2.25% and has grown 20.9% over the past five years.
In addition, the 6.5x profit and 0.43x sales indicate an extremely cheap valuation.
Monthly price performance
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Steel Dynamics, Inc. (STLD): Free Stock Research Report
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.