Two Consumer Stock To Buy Today, One To Avoid

It’s Time To Buy Stocks, But Not All Stocks Are Worth Buying Today

With the market flirting with a 20% correction the time to buy stocks is now. Yes, there is still risk in the market, the coronavirus threat is not over, but we may not get this chance again. If you want to take advantage of today’s low prices you have to pull the trigger now, while the market is low. That said, not all stocks are worth buying today so investors still need to exercise caution with their choices.

Today my focus is on the consumer. Consumer trends are robust and point to growth in spending over the course of the next year. The problem with this outlook is the coronavirus and how it will impact one consumer stock vs another. Today’s news brings to light two companies trading a deep discount with a positive fundamental outlook that I think are great buys. It also showcases another not likely to rebound this year.

Today’s Loser Is Vail Resorts

Vail Resorts (MTN) reported earnings this morning and missed consensus for revenue and earnings. The company’s business is taking a hit from the coronavirus that it will not recover from this year. Vail Resorts operates a network of ski destinations around the U.S. With traveling curtailed and consumers staying home it is no wonder the company pulled it’s full-year guidance and gave a negative outlook.

From the CEO...

“In the week ended March 8, 2020, the Company saw a marked negative change in performance from the prior week, with destination skier visits modestly below expectations. The company expects this trend to continue and potentially worsen in upcoming weeks.”

The takeaway from the guidance offered is this: business is softening and continuing to decline. To me, this translates to business is bad and getting worse. Because the coronavirus threat has not yet peaked I would expect business at most major ski destinations to come to a near-halt before the end of the season.

The real risk for Vail Resorts investors is the dividend. The company pays a nice dividend but declining revenue and the potential for worsening conditions put the distribution in danger. The company’s payout ratio was already hovering near 90%, if full-year results come in worse than even now expected a distribution cut may get put on the table. Even so, investors looking for a 9th dividend increase were disappointed by yesterday’s announcement, I wouldn’t look for another come until next year at least.

Stitch Fix' Growth Machine Is A Bargain

Stitch Fix (SFIX) reported earnings this morning and the stock sank 25%. When I first saw the headline I was sure the company had reported some dire news but no, things look good to me. What happened here is another example of the market getting ahead of itself. After two years of solid double-digit growth, investor expectations were high and the market didn’t get what the market wanted.

Stitch Fix is a web-based retail platform focused on delivery quality and value to all American’s under the Stitch Fix brand. The company reported a 22% increase in YOY revenue and missed consensus by less than than 50 basis points. Despite the miss, Stitch Fix beat on the bottom line despite the deep-discounting it blamed for the revenue miss.

While the Q2 news was less than hoped for, what really got the market moving was the guidance. Guidance for next year has revenue growth slowing to only 15%. What this means for investors today is a 30% discount to share prices that put this growth-machine trading at its lowest levels since the IPO in 2017. Don’t forget, eCommerce is expected to grow by a +20% CAGR over the next five years. Stitch Fix is well-positioned to benefit from that trend.

Dick’s Sporting Goods Knocks It Out Of The Park

Dick’s Sporting Goods (DKS) will surely feel some pain from the coronavirus but its fundamental outlook is very bullish. The company is executing a growth strategy that has been battling the trade war and beating analysts’ estimates for the last year. Today’s release, for the Q4 2019 period, is no different. The company delivered comps of 5.3%, well above the 3.2% expected, on rising foot traffic and ticket averages.

The best part of the report is the guidance for 2020. Dick’s is still expecting to see positive comps for the year and above the current consensus. Add to this expanding margins and the addition of 15 new stores (nine Dick’s Sporting Goods and 6 Golf Galaxies) and the stage is set for this stock to outperform the broad market in 2020.

Dick’s is also a great dividend payer. The stock is yielding over 3.60% and pays a safe and growing distribution. The company has been increasing the payout for six years and just raised it again today. At only 30% of next year’s consensus EPS figure, another distribution increase can be expected next year. The ex-dividend date is March 19th so there is time to get in on this investment while it is still trading at correction-levels.