When the Trump tax cuts went into effect in early 2018, most analysts thought that it would be a jump start for both earnings and stock prices. There’s no doubt that earnings have received a boost. But robust earnings reports haven’t translated to higher stock prices for a number of stocks. In fact, a number of stocks have dropped over 20% in 2018 – that qualifies as a bear market. This is all despite positive earnings reports.
So what’s the deal?
The usual suspects have been the fear of rising interest rates, the trade war with China that still has no clear resolution, and what seems to be prevailing anxiety among investors that the bull market that has been in place for almost 10 years may have run its course.
But when some stocks are down, it can represent a good buying opportunity. We've identified eight stocks that are being bested by the S&P 500 Index but represent a good buying opportunity.
Quick Links
- Federal Express
- Coty
- Whirlpool Corporation
- Pacific Gas & Electric
- L. Brands
- Kraft Heinz Co.
- American Airlines
- Cimarex Energy Co.
#1 - Federal Express (NYSE:FDX)
Federal Express (NYSE: FDX) - The major reason that Fed Ex’s stock has tanked in 2018 is the existential threat that investors feel that Amazon represents. The stock is down 22.4% for the year which is in sharp contrast to the S&P 500 ETF which is up 4.65% year to date. As Amazon is making noise about expanding their Amazon Air service, investors are nervous that they will pull market share from Federal Express. That threat, however, appears to be overstated. Amazon accounts for less than 3% of FDX's revenue. In fact, it would seem that the United States Postal Service (USPS) would be hurt more if Amazon were to start its own delivery service. More importantly, Fed Ex is continuing to adapt to the changing retail landscape so that it can compete, and in some cases provided a competitive advantage to Amazon. A good example of this is their latest initiative – a partnership with Walgreen’s Boots Alliance to provide next-day prescription service. Analysts like what they see because 90% are rating them as a buy with forecasted sales to rise by 7% in 2019 and 5% in 2020 and forecasted earnings per share (EPS) to increase 15% in 2019 and 14% in 2020.
About FedEx
FedEx Corporation provides transportation, e-commerce, and business services in the United States and internationally. It operates through FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services segments. The FedEx Express segment offers express transportation, small-package ground delivery, and freight transportation services; and time-critical transportation services.
Read More - Current Price
- $288.03
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 17 Buy Ratings, 8 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $316.04 (9.7% Upside)
#2 - Coty (NYSE:COTY)
Coty (NYSE: COTY) - This battered stock has a negative return of 59% for 2018 as opposed to a positive 12% return in 2017. The selloff accelerated when its most recent earnings report showed disappointing results with revenue down nearly 8% and revenue down over 9%. The company cited supply chain disruptions as the main reason behind its decline in organic sales. However, they also said the disappointing sales results were limited to its consumer beauty segment and not their luxury category which showed growth. This is important because that segment is where the growth is at in the cosmetic industry. The company continues to stand by its forecast of $750 million in cost saving by 2020 from its acquisition of the Cover Girl brand as well as other brands from Procter & Gamble. The question for investors is how long are they willing to wait? Has the stock hit a bottom? Maybe so. But with this stock so beaten down right now, it would seem any positive news on the supply chain issues should turn market sentiment.
About Coty
Coty Inc, together with its subsidiaries, manufactures, markets, distributes, and sells beauty products worldwide. It operates through Prestige and Consumer Beauty segments. The company provides fragrance, color cosmetics, and skin and body care products. It offers Prestige segment products primarily through prestige retailers, including perfumeries, department stores, e-retailers, direct-to-consumer websites, and duty-free shops under the Burberry, Calvin Klein, Chloe, Davidoff, Escada, Gucci, Hugo Boss, Jil Sander, Joop!, Kylie Jenner, Lancaster, Marc Jacobs, Miu Miu, Orveda, philosophy, SKKN BY KIM, and Tiffany & Co brands.
Read More - Current Price
- $7.14
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $11.56 (62.1% Upside)
#3 - Whirlpool Corporation (NYSE:WHR)
Whirlpool Corporation (NYSE: WHR) - Whirlpool was one of the big losers when the Trump tariffs were first announced. As their producer prices increased, Whirlpool – along with other appliance manufacturers - had to raise prices on their appliances. Not surprisingly, sales are struggling and were off -0.4% for the most recent quarter. As a result, the stock has been battered down over 20% for the year. However, the company recently got some good news when they were named the official kitchen and laundry appliance of Walt Disney Resort in Florida and Disneyland Resort in California. The agreement means that Whirlpool will provide its refrigerators, dishwashers, ovens, cooktops, microwaves and laundry products to these properties. Considering the number of guests that go through Disney properties on a yearly basis, the exposure should benefit the company and its family of brands. What will also benefit the company is the agreement to work with Disney Digital Network to help provide cooking and food-based content for Disney’s family of networks.
About Whirlpool
Whirlpool Corporation manufactures and markets home appliances and related products and services in the North America, Europe, the Middle East, Africa, Latin America, and Asia. The company's principal products include refrigerators, freezers, ice makers, and refrigerator water filters; laundry appliances, and commercial laundry products and related laundry accessories; cooking and other small domestic appliances; and dishwasher appliances and related accessories, as well as mixers.
Read More - Current Price
- $109.79
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 1 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $106.50 (3.0% Downside)
#4 - Pacific Gas & Electric (NYSE:PCG)
Pacific Gas & Electric (NYSE: PCG) - The California utility has had a very rough news cycle. With some speculation that it could be held liable for one of the California wildfires, some investors have justifiably headed for the exits. That news is largely the reason the stock is down over 45% since early November. However, other investors are seeing the decline as a buying opportunity specifically when the California Public Utilities Commission made statements that eased concerns of insolvency by the utility. The question for investors is whether they believe policymakers in California will follow through on 2018 regulations or respond to public demand that there be a scapegoat. But while the legal proceedings to determine fault may take months to resolve, the impact is most likely already priced into the stock. That’s why even though analysts from Wells Fargo recently cut the price target on PCG to $47 from $60, they affirmed an outperform rating for the stock. Value investors looking to buy the stock for dividends should look elsewhere. The company suspended its dividend program and is unlikely to resume it anytime soon.
About PG&E
PG&E Corporation, through its subsidiary, Pacific Gas and Electric Company, engages in the sale and delivery of electricity and natural gas to customers in northern and central California, the United States. It generates electricity using nuclear, hydroelectric, fossil fuel-fired, fuel cell, and photovoltaic sources.
Read More - Current Price
- $21.10
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $22.80 (8.1% Upside)
#5 - L. Brands (NYSE:LB)
L. Brands (NYSE: LB) - L. Brands has been one of the most punished stocks in 2018, showing a YTD decline of 46.93%. Fortunes of the parent company for Victoria’s Secret and Bath & Body Works may be looking up. The company reported sales of $1.596 billion for the four weeks ending December 1, which included record Cyber Monday sales from their Victoria’s Secret brand and 18% same-store sales growth from Bath & Body Works. The sales numbers were up from $1.267 billion for the same year in the prior period. This was particularly encouraging coming off the company’s 8% growth in sales for the last quarter. In the past three months, the stock price has risen an encouraging 13.49%. Some analysts cite that much of the sales for Victoria’s Secret is promotionally driven and that margins fell for Bath & Body Works for the first time since June. However, the company says their products are being well accepted. In retail, having products that resonate with consumers is a positive sign.
About LandBridge
LandBridge Company LLC owns and manages land and resources to support and enhance oil and natural gas development in the United States. It owns surface acres in and around the Delaware Basin in Texas and New Mexico. The company holds a portfolio of oil and gas royalties. It also sells brackish water and other surface composite materials.
Read More - Current Price
- $66.09
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 6 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $36.57 (44.7% Downside)
#6 - Kraft Heinz Co. (NASDAQ:KHC)
Kraft Heinz Co. (NASADAQ: KHC) - When a venerable name like Kraft Heinz delivers a disappointing earnings report, investors take notice. Although the company delivered a top-line number that pleased analysts, their profit and earnings per share were below expectations. The earnings report showed what appears to be a shift towards showing improvement in the top line at the expense of margin. However, this shift appears to be a trend in the overall sector and not isolated to Kraft. If so, these results may be par for the course. However, KHC claims that the reduction in margins is only temporary. Either way, it seems that the stock, which is down nearly 38% YTD, may be a good defensive play. Currently, 61% of analysts rate the stock as a buy and 91% rate it either a buy or a hold. The consensus stock price target is $68.85 per share which would represent a 17% upside from the stock’s current level.
About Kraft Heinz
The Kraft Heinz Company, together with its subsidiaries, manufactures and markets food and beverage products in North America and internationally. Its products include condiments and sauces, cheese and dairy products, meals, meats, refreshment beverages, coffee, and other grocery products under the Kraft, Oscar Mayer, Heinz, Philadelphia, Lunchables, Velveeta, Ore-Ida, Maxwell House, Kool-Aid, Jell-O, Heinz, ABC, Master, Quero, Kraft, Golden Circle, Wattie's, Pudliszki, and Plasmon brands.
Read More - Current Price
- $30.88
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $36.55 (18.3% Upside)
#7 - American Airlines (NASDAQ:AAL)
American Airlines (NASDAQ: AAL) - One of the great contradictions of the airline industry is that lower oil prices, which reduce fuel costs, are generally considered a negative sign. In the past, having these lower fuel costs have led to undisciplined capacity growth which in turn hurts revenue. So it’s not surprising that American Airlines, along with other airline stocks has been getting punished lately. Although oil prices have stabilized, and even increased a little bit, the stock is still down just under 35% for the year. However, the decline of the index for the airline sector is on pace with the Dow Jones Industrial Average. Analy1sts seem to be shrugging off the recent bad news and are forecasting a consensus price of $50.88 for the stock, up from its current $33.91. The airline weathered some bad news earlier this year when the stock dropped on reports that United was expanding their operations. The stock is not without risk particularly if the economy rolls over as some expect it might do. If the market weathers the recent correction and moves forward, this stock looks undervalued, however right now the stock is extremely volatile, with options traders causing the volume to spike.
About American Airlines Group
American Airlines Group Inc, through its subsidiaries, operates as a network air carrier. The company provides scheduled air transportation services for passengers and cargo through its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, DC, as well as through partner gateways in London, Doha, Madrid, Seattle/Tacoma, Sydney, and Tokyo.
Read More - Current Price
- $14.46
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 10 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $13.96 (3.4% Downside)
#8 - Cimarex Energy Co. (NYSE:XEC)
Cimarex Energy Co. (NYSE: XEC) - Mergers and acquisitions are commonplace in the energy sector. However, when these events occur it can be hazardous to the stock price. That’s a key factor that’s weighing on the stock price of XEC. They announced an acquisition of Resolute Energy Company in a cash and stock transaction that is valued at $1.6 billion. According to Cimarex CEO Thomas Jorden, “The Resolute assets are expected to generate free cash flow in 2019, basically funding any additional developmental capital from the start.” Shares of XEC are down nearly 40% year-to-date which is far below the SPDR Energy Select Sector ETF which is down 7% and the S&P 500 Index which is posting a gain of around 2%. Still, analysts are expressing optimism. 67% of analysts surveyed gave the stock a buy rating and the consensus price target of $123.50 gives investors plenty of upside growth from current levels which are close to its 52-week lows. XEC has a market cap of $6.91B and a P/E ratio of 10.58.
About Cimarex Energy
Cimarex Energy Co is an independent oil and gas exploration and production company. Its activities include drilling, completing and operating wells. It operates through the following areas: Permian Basin, Mid-Continent, and Others in Oklahoma, Texas and New Mexico. The company was founded by F. H. Merelli in February 2002 and is headquartered in Denver, CO.
- Current Price
- $87.20
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
Stocks are in correction territory and there’s no clear indicator of where the broader market is headed for 2019. There is sufficient reason for the lack of direction including a concern about a potential government shutdown, rising interest rates and the ongoing trade dispute with China.
However, it’s fair to ask if, after a brutal October and November, this uncertainty has already been priced into the market. Many companies are still strong earnings reports, but those that have not are being punished. However, for the stocks in this presentation, it may be fair to ask if they have been punished too much.
Many investors trade on the news and between mergers, uncertainty regarding the effect of tariffs, or changing business models, these stocks have been battered in 2018. However, analysts are taking the longer view and they are betting that these oversold stocks will rise off the mat and allow investors to profit.
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