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The market is rocking and rolling, pushing up to new all-time highs. It certainly is a time to rejoice as an investor. It may feel like the perfect time to unleash that old “dartboard approach” to investing. The problem with that is, eventually, the cream in the market will rise to the top while the rest of the market will settle lower. One way to find that cream at the top is by leaning on the time-tested strength of the Zacks Rank. I used the Zacks Rank to come up with today’s Bull of the Day. I’m talking about Zacks Rank #1 (Strong Buy) BHP Group.
BHP Group discovers, acquires, develops, and markets natural resources worldwide. The company engages in the exploration, development, and production of oil and gas properties; and mining of copper, silver, lead, zinc, molybdenum, uranium, gold, and iron ores, as well as metallurgical and energy coal. It also engages in the mining, smelting, and refining of nickel; provision of freight, finance, and administrative services, as well as trading, marketing, and support services; and potash development activities.
The reason for the favorable Zacks Rank lies in the series of earnings estimate revisions to the upside recently. Over the last thirty days, two analysts have increased their earnings estimates for the current year, while three analysts have increased their estimates over the last sixty days for next year. The bullish sentiment pushed up the Zacks Consensus Estimate for the current year from $3.86 to $4.56. Next year’s number has popped from $3.52 to $4.23.
Stock prices have a tendency to move along with earnings. Stocks with favorable Zacks Ranks have the strongest earnings trends. One way to visualize this is by looking at our Price, Consensus and EPS Surprise charts. Estimates for each year are plotted, along with the stock price. Here, the Price, Consensus and EPS Surprise chart for BHP Group shows earnings estimates bottoming out along with the stock price in early 2016. From there, consistent earnings moves to the upside have helped underpin a long-term rally.
Today’s Bear of the Day is a stock that had been a high-flier until last quarter. A bearish earnings report sealed the deal for the bears, causing a tough selloff for long-term investors. The writing was, however, on the wall before this report. Earnings estimates had already begun to rollover, well ahead of the report. One way to uncover this potential looming danger in stocks is to lean on the Price, Consensus and Earnings chart on Zacks. I’ll show you how to avoid these potential pitfalls in the future by using this chart.
The stock I’m talking about is Zacks Rank #5 (Strong Sell) Foot Locker. Foot Locker, Inc., through its subsidiaries, operates as an athletic shoes and apparel retailer. The company operates in two segments, North America and International. The company retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. It also sells team licensed merchandise for high school and other athletes.
The reason for the unfavorable rank lies in the series of earnings estimate revision to the downside coming from analysts. Following its last earnings report, eleven analysts cut their earnings estimates for both the current year and next year. The bearish sentiment has dropped the Zacks Consensus Estimate for the current year down from $5.20 to $5.02. Next year’s number has also been brought lower, from $5.68 to $5.44.
Subscription-based revenue is the new gold standard for software companies. This business model creates long-standing sustainable revenue that has the ability to continue to grow as the business does. This model has been successfully integrated into software behemoth, Adobe. Adobe has driven north of 20% revenue growth for every quarter year-over-year since 2015. ADBE has surge more than 313% in 5 years, and potential investors keep missing the boat. The stock is on track for their 8th consecutive year of double-digit returns.
Adobe Stock Analysis
ADBE is riding its all-time high, trading around $300. I as an investor am always apprehensive about buying such a volatile stock on new highs because historical price trends show that the stock is likely to dip before it hits new highs. This being said, I do not have a crystal ball and this price could very well be the 52-week low in 52 weeks.
This firm’s performance has been extraordinary since its pivot to cloud-based software, which began in mid-2013. They were an early mover on this type of subscription driven software and have been able to reap the benefits. Effectively all of Adobe’s revenue is now being delivered to customers through the cloud and their stable subscription-based sales are pushing year-over-year as well as quarter-over-quarter growth nowhere but up.
Adobe is a must have software for professionals in both creative fields and marketing. They are the clear leader in digital content creation which is a category that is only going to grow as our society becomes increasingly digitalized. Being an essential provider of software for professionals in a growing industry gives this firm a solid backing for a buy recommendation at the right valuation.
Looking at valuation, this firm is consistent with a firm that is expected to have strong double-digit top and bottom-line growth for the next 3 years. ADBE is trading at a TTM P/E of 51x and a forward P/E of 40x, both around their 5-year median.
Risks
Adobe has an enormous amount of growth priced into it, and if they are unable to grow their customer base or software prices in line with analyst expectations, the stock’s current valuation could be discounted. The current valuations are far above any comparable firm and economic as well as geopolitical headwinds could have a significant downside to Adobe’s stock price.
Competing cloud-based software firms include Oracle and Salesforce.
Take Away
There is no question that Adobe has an extraordinary business model with an enormous amount of potential as the undeniable leader in the digital content creation space. The question is whether the current price is the right price to buy. As a long term investor (more than 2 years) not worried about short to medium term volatility, I would say this stock is trading at reasonable enough valuations to buy and hold through the volatility. 8 consecutive years of strong double digit stock return is a convincing argument for a proved business model.
If you are a medium to short term investor, (6 months or less) I would wait for a valuation dip to jump into ABDE. Seeing the 12-month forward P/E come closer to the 35x level would make me as an investor feel much more comfortable about buying this software powerhouse.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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BHP, Foot Locker, Adobe, Oracle and Salesforce highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – July 3, 2019 – Zacks Equity Research Shares of BHP Group as the Bull of the Day, Foot Locker (FL - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Adobe (ADBE - Free Report) , Oracle (ORCL - Free Report) and Salesforce (CRM - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
The market is rocking and rolling, pushing up to new all-time highs. It certainly is a time to rejoice as an investor. It may feel like the perfect time to unleash that old “dartboard approach” to investing. The problem with that is, eventually, the cream in the market will rise to the top while the rest of the market will settle lower. One way to find that cream at the top is by leaning on the time-tested strength of the Zacks Rank. I used the Zacks Rank to come up with today’s Bull of the Day. I’m talking about Zacks Rank #1 (Strong Buy) BHP Group.
BHP Group discovers, acquires, develops, and markets natural resources worldwide. The company engages in the exploration, development, and production of oil and gas properties; and mining of copper, silver, lead, zinc, molybdenum, uranium, gold, and iron ores, as well as metallurgical and energy coal. It also engages in the mining, smelting, and refining of nickel; provision of freight, finance, and administrative services, as well as trading, marketing, and support services; and potash development activities.
The reason for the favorable Zacks Rank lies in the series of earnings estimate revisions to the upside recently. Over the last thirty days, two analysts have increased their earnings estimates for the current year, while three analysts have increased their estimates over the last sixty days for next year. The bullish sentiment pushed up the Zacks Consensus Estimate for the current year from $3.86 to $4.56. Next year’s number has popped from $3.52 to $4.23.
Stock prices have a tendency to move along with earnings. Stocks with favorable Zacks Ranks have the strongest earnings trends. One way to visualize this is by looking at our Price, Consensus and EPS Surprise charts. Estimates for each year are plotted, along with the stock price. Here, the Price, Consensus and EPS Surprise chart for BHP Group shows earnings estimates bottoming out along with the stock price in early 2016. From there, consistent earnings moves to the upside have helped underpin a long-term rally.
Bear of the Day:
Today’s Bear of the Day is a stock that had been a high-flier until last quarter. A bearish earnings report sealed the deal for the bears, causing a tough selloff for long-term investors. The writing was, however, on the wall before this report. Earnings estimates had already begun to rollover, well ahead of the report. One way to uncover this potential looming danger in stocks is to lean on the Price, Consensus and Earnings chart on Zacks. I’ll show you how to avoid these potential pitfalls in the future by using this chart.
The stock I’m talking about is Zacks Rank #5 (Strong Sell) Foot Locker. Foot Locker, Inc., through its subsidiaries, operates as an athletic shoes and apparel retailer. The company operates in two segments, North America and International. The company retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. It also sells team licensed merchandise for high school and other athletes.
The reason for the unfavorable rank lies in the series of earnings estimate revision to the downside coming from analysts. Following its last earnings report, eleven analysts cut their earnings estimates for both the current year and next year. The bearish sentiment has dropped the Zacks Consensus Estimate for the current year down from $5.20 to $5.02. Next year’s number has also been brought lower, from $5.68 to $5.44.
Additional content:
Adobe (ADBE - Free Report) : Buy or Die?
Subscription-based revenue is the new gold standard for software companies. This business model creates long-standing sustainable revenue that has the ability to continue to grow as the business does. This model has been successfully integrated into software behemoth, Adobe. Adobe has driven north of 20% revenue growth for every quarter year-over-year since 2015. ADBE has surge more than 313% in 5 years, and potential investors keep missing the boat. The stock is on track for their 8th consecutive year of double-digit returns.
Adobe Stock Analysis
ADBE is riding its all-time high, trading around $300. I as an investor am always apprehensive about buying such a volatile stock on new highs because historical price trends show that the stock is likely to dip before it hits new highs. This being said, I do not have a crystal ball and this price could very well be the 52-week low in 52 weeks.
This firm’s performance has been extraordinary since its pivot to cloud-based software, which began in mid-2013. They were an early mover on this type of subscription driven software and have been able to reap the benefits. Effectively all of Adobe’s revenue is now being delivered to customers through the cloud and their stable subscription-based sales are pushing year-over-year as well as quarter-over-quarter growth nowhere but up.
Adobe is a must have software for professionals in both creative fields and marketing. They are the clear leader in digital content creation which is a category that is only going to grow as our society becomes increasingly digitalized. Being an essential provider of software for professionals in a growing industry gives this firm a solid backing for a buy recommendation at the right valuation.
Looking at valuation, this firm is consistent with a firm that is expected to have strong double-digit top and bottom-line growth for the next 3 years. ADBE is trading at a TTM P/E of 51x and a forward P/E of 40x, both around their 5-year median.
Risks
Adobe has an enormous amount of growth priced into it, and if they are unable to grow their customer base or software prices in line with analyst expectations, the stock’s current valuation could be discounted. The current valuations are far above any comparable firm and economic as well as geopolitical headwinds could have a significant downside to Adobe’s stock price.
Competing cloud-based software firms include Oracle and Salesforce.
Take Away
There is no question that Adobe has an extraordinary business model with an enormous amount of potential as the undeniable leader in the digital content creation space. The question is whether the current price is the right price to buy. As a long term investor (more than 2 years) not worried about short to medium term volatility, I would say this stock is trading at reasonable enough valuations to buy and hold through the volatility. 8 consecutive years of strong double digit stock return is a convincing argument for a proved business model.
If you are a medium to short term investor, (6 months or less) I would wait for a valuation dip to jump into ABDE. Seeing the 12-month forward P/E come closer to the 35x level would make me as an investor feel much more comfortable about buying this software powerhouse.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.