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6 Buy-and-Hold Stocks with Near-Term Upside Potential

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Most of us are looking for stocks that we can buy and hold for the long term. That could be because the ups and downs of the stock markets is disconcerting for us.

Or it could be because we don’t have the time or inclination to keep a close eye on the market at all times. Or, it could be that we’ve heard of this tried and tested strategy, according to which we can generate strong returns by simply picking the stocks wisely and then hanging on to them for long enough.

Whatever may be the reason we are searching for these winners, it goes without saying that every good stock is not going to be another Apple or Google or Facebook, for that matter. These are some of the tech titans that benefited from a large number of factors that worked in conjunction, in their favor. And so, these stocks brought outsized returns to investors.

But there are many other seemingly boring names that also have the potential to generate strong returns. It’s relatively easier to determine which stocks have upside potential in the near to medium term because analysts are able to project results for a few years based on recent performance, the historical growth profile and current/fresh factors impacting the stock or industry.

In fact, if a stock’s revenue or earnings doesn’t reflect its value, it is the surest sign that the shares are undervalued, which again indicates that they represent upside potential.

At Zacks, we also have the proprietary stock ranking system, according to which every stock in our universe is allotted a 1 to 5 rank based on its upside potential and other parameters. So a #1 rank is the strongest with #5 being the weakest. The Zacks Rank has proved itself for 20+ years, with #1 ranked stocks having outperformed the market by huge margins every year.

When stocks are picked by pairing the stock rank with the Zacks Industry Rank, which grades 250+ Zacks-classified industries, the chances of success improve still further. An attractive industry can also play a big role in longer-term growth prospects.

For example, most of the stocks in semiconductor industries are likely to see steady growth over the next few years because of the rapid pace of technology adoption. So these stocks could be relatively more attractive than consumer staples, which are more dependent on slower-moving factors like population size.

The goal today is to find stocks that have good long-term potential (identified through the estimated long-term growth rate) but also significant upside potential in the near term (identified through the recent strength in results, estimated growth rates for the next two years and the current valuation). All these stocks also belong to attractive industries with both short and long-term implications. So let’s take a look-

PVH Corp. (PVH - Free Report)

Zacks #1 (Strong Buy) ranked PVH (formerly Phillips-Van Heusen Corp) is a well-known brand in the business of designing and marketing branded dress shirts, neckwear, sportswear, denims, intimate apparel, swim products, footwear, handbags and related products.

The Textile – Apparel industry to which it belongs is currently at the top 11% of Zacks-classified industries. The top 50% have historically outperformed the bottom 50% by a factor of 2 to 1.

In the last quarter, the company topped estimates by 134.2% with the last 4-quarter average surprise being 171.7%.

In the year ending Jan 2022, PVH is expected to generate revenue and earnings growth of 26.3% and 436.6%, respectively. This will be followed by a 7.4% growth in revenue and a 30.0% growth in earnings in the following fiscal year. What’s more, it has a long-term estimated earnings growth rate of 18.0%.

Now you would expect a company like this, which is benefiting hugely from the reopening, to have an expensive valuation. But no. Its forward price-to-earnings (P/E) of 15.35X is extremely reasonable, even low. Likewise for the price-to-sales (P/S) ratio, which at 0.92X, remains attractive.

Urban Outfitters, Inc. (URBN - Free Report)

#1 ranked Urban Outfitters is a lifestyle specialty retailer offering fashion apparel and accessories, footwear, home décor and gifts through its stores, catalogs, call centers and e-commerce platforms in the U.S., Canada and Europe.

URBN belongs to the Retail – Apparel and Shoes industry, which is in the top 17% of Zacks-ranked industries.

In the last quarter, it topped the Zacks Consensus Estimate by 237.5%. The average surprise in the last four quarters is 129.2%.

The company’s forward growth estimates are highly encouraging. It is expected to grow earnings 23,500% this year ending Jan 2021 (the huge jump is of course the result of easy comps from the pandemic hit 2020). It’s currently expected to grow 4.9% in 2023. Earnings are expected to grow 11.5% in the long term.

But growth prospects should also ideally be seen from where revenues are going because if revenues don’t grow, there’s only so much you can do with cost efficiencies. So without revenue growth, earnings tend to come under pressure as well. In this case, it’s encouraging to note that URBN is also expected to grow revenue: at 24.1% in the current year and 4.9% in the following year.  

The valuation also looks reasonable at a P/E of 15.8X and P/S of 0.97X.

WESCO International, Inc. (WCC - Free Report)

WESCO is one of the largest players in the highly fragmented market for the distribution of electrical construction products in North America.

The Zacks Rank #2 (Buy) stock belongs to the Electronics – Parts Distribution industry, which is in the top 4% of Zacks-ranked industries.

The company’s recent surprise history offers a good indication of its potential. The company beat the Zacks Consensus Estimate by a whopping 88.2% in the last quarter, which took the last four-quarter average surprise to 52.0%.

And this growth trajectory is expected to continue in 2021 with 38.9% revenue growth and 65.5% earnings growth. In the following year, revenue is expected to grow 3.7% and earnings 16.3%. Its estimated long-term growth is currently pegged at 10.0%.

The stock trades at a P/E multiple of 13.7X and a P/S multiple of 0.34X, both of which are indicative of a really cheap valuation.

GIII Apparel Group, LTD. (GIII - Free Report)

The company manufactures, designs and distributes apparel and accessories of licensed, owned and private label brands. Its product line includes dresses, sportswear, swimwear, women’s suits, performance wear, handbags, footwear, small leather goods, cold weather accessories and luggage.

GIII also belongs to the Textile – Apparel industry, so it will benefit from the positive operating climate.

The Zacks Rank #2 stock also has an attractive surprise history with a positive surprise of 278.6% in the last quarter and an average 122.8% in the last four quarters.

The earnings growth estimate for the year ending Jan 2022 represents growth of 275.0%. Growth for the following year is expected to be 13.4%. Long-term growth is expected to be 11.6%. Revenue growth is currently estimated at 25.7% in 2022 and 8.6% in 2023.

The company is trading at 11.6X P/E and 0.7X P/S, so it’s going cheap.

AGCO Corp. (AGCO - Free Report)

AGCO is a leading manufacturer and distributor of agricultural equipment and related replacement parts with dealer networks and distributors across 140 countries.  Its product lines include tractors, combines, application equipment like self-propelled sprayers, hay tools and forage equipment, implements, etc.

The Zacks Rank #2 stock operates in the Manufacturing - Farm Equipment industry, which is at the top 12% of Zacks-ranked industries.

The company has topped estimates at double and triple-digit rates in each of the last four quarters at an average rate of 428.4%. In the last quarter, it topped the Zacks Consensus Estimate by 80.2%.

Its estimated earnings growth potential is extremely attractive. Analysts currently expect it to grow 54.6% in 2021, 11.5% in 2022 and 16.4% in the long term. They’re projecting revenue growth of 17.2% this year and 5.6% in the next.

Despite the strong growth prospects, the stock is trading quite cheap, at 14.1X earnings and 0.96X sales.

ArcBest Corp. (ARCB - Free Report)

ArcBest provides freight transportation services and solutions including motor freight, business-to-business air transportation services; ocean transport services; global customizable supply chain solutions and integrated warehousing services. Through its premium segment, it also offers expedited freight transportation services to commercial and government customers; premium logistics services; and domestic and international freight transportation through air, ocean and ground services.

The Zacks Rank #2 stock belongs to the Transportation – Truck industry (top 9%).

ARCB has topped the Zacks Consensus Estimate by 71.2% in the last quarter. Given its very strong performance in the three preceding quarters as well, the 4-quarter average surprise comes to 618.3%.

It is currently expected to grow earnings 57.6% this year and 6.0% in the next. Long-term earnings growth is currently estimated at 15.3%. Revenue growth in the current and following years are expected to be a respective 18.5% and 5.0%.

The stock currently trades at a P/E of 10.7X and P/S of 0.5X. So it is attractive from the valuation perspective as well.

One-Month Price Performance

Zacks Investment ResearchImage Source: Zacks Investment Research

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