Wall Street is laser-focused on reports from big tech names such as Microsoft and Apple during the last week of July. Investors also made sure to tune into the latest updates from the Fed on Wednesday, with the central bank offering up what has become its somewhat standard sentiment regarding eventual rate hikes.
The long-term bull case for the market remains in place despite delta coronavirus worries and economic slowdown fears. And the quick return to new highs after the mid-month pullback might indicate the selloff was driven by profiting taking, as many tech names entered frothy technical levels.
Wall Street heavy hitters could continue to use the second quarter earnings season as a chance to take more profits. Inventors with longer-term horizons should block out the noise and buy strong stocks because timing the market is extremely difficult—the month of July is a great example.
The current bull case for the market remains in place, highlighted by a reopened U.S. economy and an improving earnings outlook. On top of that, TINA investing is poised to continue for years given that interest rates will remain historically low even when the Fed starts to lift them above rock-bottom levels.
Give this backdrop, let’s dive into two stocks trading at discounts that are prepared to grow within larger economic trends…
Peloton Interactive, Inc. ( PTON Quick Quote PTON - Free Report)
The high-end, high-tech stationary bike company was a star of the coronavirus economy and the stock soared for around 10 months. Peloton then skidded as Wall Street sold high-flyers. The PTON also faced backlash over product safety concerns for its treadmill, which it officially recalled in early May. The stock tumbled nearly 15% on May 5 alone, dropping to an eight-month low at the time.
The one session tumble pushed PTON below oversold RSI (30) levels. Since then, investors have poured back into Peloton, with the stock up nearly 50%. Despite the comeback, the stock closed regular trading Wednesday almost 30% below its records at $121.92 a share.
Peloton also trades near neutral RSI levels (50) at 56 and its bounced back above both its 50-day and 200-day moving averages. And it trades at a 40% discount to its own year-long highs at 6.7X forward sales. PTON’s climb could continue given this backdrop, along with its growth outlook.
Image Source: Zacks Investment Research
Peloton sells different tiers of connected bikes and treadmills, starting at $1,895 for the bike and $2,495 for the tread, while the new + offerings cost much more—tread+ starts at $4,295. PTON also allows users to make monthly payments to make its products more attainable.
Perhaps most importantly for its long-term success, Peloton makes money from its $39 per month All-Access Memberships. And people who don’t own its equipment can pay $12.99 a month for a digital membership that allows them to take classes for indoor cycling, running, strength, and more.
Even as things return closer to normal, it’s unclear how quickly gyms will return to capacity. And there is no reason why many of Peloton’s wealthier customers won’t simply choose to do both down the road.
PTON is poised to grow for years as part of a broader connected fitness world that features Lululemon’s (
LULU Quick Quote LULU - Free Report) Mirror and many others—even Apple ( AAPL Quick Quote AAPL - Free Report) is rolling out more health-focused offerings. And it is continuing to expand.
Peloton in April completed its purchase of commercial fitness firm Precor. The deal will improve its manufacturing and help it break into areas such as hotels and condo buildings. The company also announced just last week a partnership with it UnitedHealthcare. And the firm said recently that it plans to roll an in-app video game.
PTON’s full-year fiscal 2020 sales soared 100% to $1.8 billion. The company then closed its most recent quarter (Q3 FY21) with over 2.08 million Connected Fitness Subscriptions, up 135% from the year-ago period and its Digital Subscriptions grew 404% to around 891K. Zacks estimates call for Peloton’s FY21 revenue to soar 120% to $4.02 billion, with FY22 set to surge another 31% or $1.3 billion to reach $5.27 billion—its total FY19 revenue was $915 million.
Image Source: Zacks Investment Research
Meanwhile, PTON is projected to cut its adjusted loss of -$0.32 to -$0.07 a share, with it then projected to swing to positive earnings of +$0.56 a share in FY22. Peloton has crushed our adjusted EPS estimates in the last four periods and its experienced some positive bottom-line revisions activity recently. PTON currently lands a Zacks Rank #3 (Hold), alongside a “B” grade for Growth in our Style Scores system.
The stock is part of the Leisure and Recreation Products space that sits in the top 9% of over 250 Zacks industries. Wall Street remains largely high on Peloton, with 17 of the 23 broker recommendations we have at “Strong Buys,” with only one “Strong Sell.”
FedEx ( FDX Quick Quote FDX - Free Report)
FedEx is a global shipping powerhouse that pulled in $69 billion in FY20. The firm then benefitted greatly from a blockbuster year for e-commerce, with its FY21 revenue up 21% to $84 billion—period ended on May 31. The stock surged on its growth within the booming digital commerce and delivery world.
But it has cooled down and it took a hit this week after Wall Street dumped the stock on the back of a ‘disappointing’ showing from United Parcel Service (
UPS Quick Quote UPS - Free Report) . The recent decline could set up a more enticing entry point, considering FedEx’s fundamentals remain compelling.
FDX cut ties with Amazon (
AMZN Quick Quote AMZN - Free Report) in the summer of 2019. Wall Street appeared somewhat perplexed at the time, but FedEx understood Amazon’s ambitions and it started to focus on doing business with its rivals like Target ( TGT Quick Quote TGT - Free Report) . The Tennessee-based firm has beefed up its automation efforts and is modernizing its Express air fleet. FDX completed in late December its purchase of e-commerce platform ShopRunner that aims to directly connect brands and merchants with online shoppers. Image Source: Zacks Investment Research
FedEx remains committed to its business-to-business segment, but e-commerce is where much of its growth will come from for years. The company is investing in and optimizing its last-mile residential deliveries. FedEx executives last year cut their timeline for overall industry expansion, as coronavirus pushed e-commerce adoption into overdrive.
FDX at one point projected the overall U.S. market will reach 100 million packages per day by calendar year 2023, down from its pre-Covid projection of 2026. FDX expects that 96% of this anticipated growth will come from e-commerce. The company also anticipates room for big growth in the international e-commerce market.
Zacks estimates call for FedEx’s fiscal 2022 revenue to jump 6.5% above last year’s stellar, covid-boosted year, with FY23 projected to climb over 4% higher to reach $93 billion. At the bottom end of the income statement, FDX’s adjusted earnings are projected to jump 17% and 11%, respectively. And FedEx’s overall earnings picture has improved significantly since its last report, with its FY23 consensus up 16% since its June 24 financial release.
FedEx lands a Zacks Rank #3 (Hold) at the moment and it earns “A” grades for Value and Growth in our Style Scores system, along with a “B” for Momentum. FDX’s Transportation - Air Freight and Cargo industry is in the top half of over 250 Zacks industries. And 16 of the 21 brokerage recommendations Zacks has are “Strong Buys,” with none under a “Hold.” And FDX’s dividend yields 1.06% at the moment, which is not too far below the 10-year U.S. Treasury.
Image Source: Zacks Investment Research
The stock is now up 75% in the last five years, driven by a 65% jump in the past 12 months that’s helped it outpace the S&P 500, its industry, and its Zacks econ sector. As we mentioned up top, FedEx has cooled down, with shares up only 8% in 2021 to lag the benchmark index’s 18% run. FDX closed regular hours Wednesday nearly 12% below its records at $281.83 a share.
The recent pullback has pushed FDX right near its 200-day moving average and near oversold RSI levels (30) at 33. FedEx is also trading 15% below its year-long median and 40% below its highs at 13.1X forward 12-month earnings.