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Earnings season is turning out to be better than expected. But the pessimistic sentiment on the street sees this as a sign that the bad news is just getting pushed out. Companies don’t want to commit to any numbers, so they’re delaying the process.
The truth is, most companies don’t offer specifics more than a quarter out, even in normal circumstances, this early in the day. It’s only after the fourth quarter numbers are out that we have the guidance for the following quarter/year.
That’s not to say that there is no reason for concern. Nor that it wouldn’t have been good to know more about 2023. The supply chain is still snarled after all and the interest rate does keep climbing. For all the effort, inflation doesn’t look close to tamed.
With the uncertainty therefore likely to continue, value investing remains the best strategy to tide you over. The idea is to pick cheap stocks that do not reflect their potential because investors are somehow overlooking them. And if there’s a dividend going, that’s good to have as well.
In this context, one stock that caught my eye is Cracker Barrel Old Country Store (CBRL - Free Report) . The Lebanon, Tennessee-based restaurateur is known for its home-style country food, including meatloaves, homemade chicken n' dumplings and its signature biscuits. The restaurants come paired with a retail outlet selling gifts and treats, and household necessities.
This isn’t the best of times for a restaurant given the rising inflation, softening demand, a softer than expected summer travel season and considerable uncertainty about the spending environment in general. Cracker Barrel has also seen a decline in its older patrons since the COVID scare.
The reason this company stands out however is the way it has adjusted its pricing strategy and menu design to attract a broader range of visitors while maintaining staff levels. These efforts have hit its margins while allowing it to continue growing its revenue. Cost management, technology investment and a broader customer base are designed to generate continued growth as inflationary pressures ease.
Analysts are clearly buying into this plan, as their 2023 (ending July) estimates are up by 36 cents (5.9%) in the last 30 days. The 2024 estimate is up by an even higher 85 cents, which works out to a 13.0% increase.
The company is not expected to report current quarter results until Nov 22, but its 0.00 earnings Expected Surprise Prediction (ESP) coupled with the Zacks #2 (Buy) rank indicates a fair chance of beating estimates as of now.
Cracker Barrel has Value, Growth and Momentum scores of B, A and A, respectively, which makes them a good pick for almost any kind of investor.
A closer look at the valuation shows that CBRL is trading at a 14.91X multiple of price to forward earnings, which is 3% off its median level this past year and 13.2% off its five-year median.
It also pays a dividend that yields 5.22%.
Second on today’s list is Euroseas Ltd. (ESEA - Free Report) , which is in the business of transporting dry and refrigerated containerized cargoes like manufactured products and perishables on vessels that it owns and operates. It is based in Marousi, Greece.
Being a transportation company, Euroseas continues to benefit from the supply chain issues and the record high time charter rates. Even though it isn’t immune to the labor issues, COVID constraints and rising energy costs that others are seeing, the high rates and order book sets this company apart.
Therefore, the last quarter was the company’s strongest one ever. And although one-year charter rates dropped 10-20% in July and August, they are still at historical highs. With rates staying so high and vessel availability so low, charterers are avoiding contracts of more than three years for now. Broader macro concerns and COVID-related shutdowns (mainly in China) are also playing spoilsport.
Based on the visibility offered by the order book, demand for finished goods is likely to soften in the first half before picking up in the second half of 2023 and remain strong in 2024. One offsetting factor will be new regulations coming into effect in 2023 that will require scrapping of some older vessels, which will limit capacity. Management is confident about growth in the next two years, as well as about returning value to customers through share buybacks and dividends, and about investment in capacity addition.
The strength is reflected in its estimates. Overall, revenue and earnings are expected to grow a respective 100.1% and 156.7% this year followed by 27.5% revenue growth and 31.4% earnings growth in 2023. Earnings estimates for the two years increased 6.6% and 5.4% since it last reported.
The shares carry a Zacks Rank #1 (Strong Buy), which along with the ESP of 0 indicate a beat when the company reports on Nov 15. With both Value and Growth scores at A, the shares are clearly worth buying.
Particularly because they are trading at 1.1X P/E, which is low by any standards and is 35.7% off their median level in the past year and 62.8% off their five-year median. It appears that the difficult comps next year and a possible recession are weighing down the stock much more than they should.
Euroseas also pays a dividend that yields 9.36%.
One-Month Price Performance
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2 Buy Ranked Stocks at Attractive Valuations
Earnings season is turning out to be better than expected. But the pessimistic sentiment on the street sees this as a sign that the bad news is just getting pushed out. Companies don’t want to commit to any numbers, so they’re delaying the process.
The truth is, most companies don’t offer specifics more than a quarter out, even in normal circumstances, this early in the day. It’s only after the fourth quarter numbers are out that we have the guidance for the following quarter/year.
That’s not to say that there is no reason for concern. Nor that it wouldn’t have been good to know more about 2023. The supply chain is still snarled after all and the interest rate does keep climbing. For all the effort, inflation doesn’t look close to tamed.
With the uncertainty therefore likely to continue, value investing remains the best strategy to tide you over. The idea is to pick cheap stocks that do not reflect their potential because investors are somehow overlooking them. And if there’s a dividend going, that’s good to have as well.
In this context, one stock that caught my eye is Cracker Barrel Old Country Store (CBRL - Free Report) . The Lebanon, Tennessee-based restaurateur is known for its home-style country food, including meatloaves, homemade chicken n' dumplings and its signature biscuits. The restaurants come paired with a retail outlet selling gifts and treats, and household necessities.
This isn’t the best of times for a restaurant given the rising inflation, softening demand, a softer than expected summer travel season and considerable uncertainty about the spending environment in general. Cracker Barrel has also seen a decline in its older patrons since the COVID scare.
The reason this company stands out however is the way it has adjusted its pricing strategy and menu design to attract a broader range of visitors while maintaining staff levels. These efforts have hit its margins while allowing it to continue growing its revenue. Cost management, technology investment and a broader customer base are designed to generate continued growth as inflationary pressures ease.
Analysts are clearly buying into this plan, as their 2023 (ending July) estimates are up by 36 cents (5.9%) in the last 30 days. The 2024 estimate is up by an even higher 85 cents, which works out to a 13.0% increase.
The company is not expected to report current quarter results until Nov 22, but its 0.00 earnings Expected Surprise Prediction (ESP) coupled with the Zacks #2 (Buy) rank indicates a fair chance of beating estimates as of now.
Cracker Barrel has Value, Growth and Momentum scores of B, A and A, respectively, which makes them a good pick for almost any kind of investor.
A closer look at the valuation shows that CBRL is trading at a 14.91X multiple of price to forward earnings, which is 3% off its median level this past year and 13.2% off its five-year median.
It also pays a dividend that yields 5.22%.
Second on today’s list is Euroseas Ltd. (ESEA - Free Report) , which is in the business of transporting dry and refrigerated containerized cargoes like manufactured products and perishables on vessels that it owns and operates. It is based in Marousi, Greece.
Being a transportation company, Euroseas continues to benefit from the supply chain issues and the record high time charter rates. Even though it isn’t immune to the labor issues, COVID constraints and rising energy costs that others are seeing, the high rates and order book sets this company apart.
Therefore, the last quarter was the company’s strongest one ever. And although one-year charter rates dropped 10-20% in July and August, they are still at historical highs. With rates staying so high and vessel availability so low, charterers are avoiding contracts of more than three years for now. Broader macro concerns and COVID-related shutdowns (mainly in China) are also playing spoilsport.
Based on the visibility offered by the order book, demand for finished goods is likely to soften in the first half before picking up in the second half of 2023 and remain strong in 2024. One offsetting factor will be new regulations coming into effect in 2023 that will require scrapping of some older vessels, which will limit capacity. Management is confident about growth in the next two years, as well as about returning value to customers through share buybacks and dividends, and about investment in capacity addition.
The strength is reflected in its estimates. Overall, revenue and earnings are expected to grow a respective 100.1% and 156.7% this year followed by 27.5% revenue growth and 31.4% earnings growth in 2023. Earnings estimates for the two years increased 6.6% and 5.4% since it last reported.
The shares carry a Zacks Rank #1 (Strong Buy), which along with the ESP of 0 indicate a beat when the company reports on Nov 15. With both Value and Growth scores at A, the shares are clearly worth buying.
Particularly because they are trading at 1.1X P/E, which is low by any standards and is 35.7% off their median level in the past year and 62.8% off their five-year median. It appears that the difficult comps next year and a possible recession are weighing down the stock much more than they should.
Euroseas also pays a dividend that yields 9.36%.
One-Month Price Performance
Image Source: Zacks Investment Research