Back to top

Image: Bigstock

5 Stocks Bucking the Market Trend

Read MoreHide Full Article

As everyone was expecting, the Fed lowered interest rates by 50 bps yesterday, setting off a chain reaction that will ultimately increase all kinds of borrowing costs, including for credit cards, mortgages, business loans -- you name it.

The numbers indicate and the Fed believes you do have more to spare for your favorite food, clothing, etc., not to mention the ability to cover the rising cost of plane tickets, as you finally take that summer trip you were putting off for a couple of years.

I’ve picked a list of 5 stocks that have been bucking the trend over the past month, when we just couldn’t stop talking about what the Fed intended to do. It doesn’t look like these stocks are going to change course now that it’s a done deal. So let’s see what they are about and why they make good investments today:

Griffon Corporation (GFF - Free Report)

New York-based Griffon Corp. offers various products in the U.S., Europe, Canada and Australia. Its Consumer and Professional Products (CPP) segment is a leading North American manufacturer and global provider of branded consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles.

Its Home and Building Products (HBP) segment is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. They are sold through professional dealers and leading home center retail chains throughout North America for commercial, industrial, institutional and retail uses. The Diversified Operations industry to which Griffon belongs is in the top 18% of Zacks-classified industries.

Griffon frequently acquires and divests businesses to restructure and refocus operations, which is why comparison with earlier periods is not always easy. In the last quarter for instance the company did see some benefit from pricing, volumes and mix, but the 23% increase from last year was also boosted by its Hunter Fan acquisition.

This strategy also helps the company deal with market uncertainties. In the last quarter, for instance, the commercial business was stronger for the company with residential impacted by labor and supply chain constraints. Also, while the strong revenue was partially offset by increased material, labor and transportation costs, net-net, Griffon still generated 185% earnings growth. Overall, its revenues surprised by 15% and earnings by 211%.

Griffon’s estimates for the current quarter increased 30 cents (49%) in the last 7 days. The 2022 estimate increased 82 cents (40%) and the 2023 estimate increased 55 cents (21%).

Its valuation of 10.18X P/E, while improving in the last few days, still remains well below its median level over the past year, besides trailing significantly both the S&P 500 and the related industry. So the shares are still cheap.

The shares carry a Zacks Rank #1 (Strong Buy).

Forward Air Corporation (FWRD - Free Report)

Greeneville, Tennessee-based Forward Air is an asset-light freight and logistics company operating in the U.S. and Canada. Its primary business is expedited regional, inter-regional and national less-than-truckload services.

It also provides local and last-mile delivery, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling services, as well as expedited truckload brokerage, dedicated fleet, and high security and temperature-controlled logistics services. Additionally, it provides intermodal container drayage services; and contract, and container freight station warehouse and handling services.

Forward Air serves freight forwarders, third-party logistics companies, integrated air cargo carriers and passenger, passenger and cargo airlines, steamship lines and retailers.

Given the nature of its business, it’s clear why Forward Air is doing so well. Most of the supply chain issues that companies are facing today are related to transportation bottlenecks, which are driving up prices. Container management issues have created one of the biggest challenges of the supply chain today.

The fact that it is a last-mile operator shows that it is also benefiting from the surging online shopping trend. This also explains why the Transportation – Truck industry, to which Forward Air belongs, is in the top 30% of Zacks-classified industries.

In the last quarter, Forward Air’s revenue and earnings came in around 3% ahead of estimates. But the beats don’t tell the story about just how positive analysts are on this stock. Revenues represented a 29% increase from the prior year while earnings represented a 161% increase.

The strong results were attributed to better quality freight in the less-than-truckload business, a strong economy and efficient execution. Forward Air management is convinced that the momentum will continue as cruise ships, conferences and trade shows return. And so, it raised guidance.

Forward Air’s estimates have been rising over the past month. The current quarter estimate is up 27 cents (15%) in the last 30 days. The current year estimate is up 71 cents (13%) and the 2023 estimate is up 36 cents (over 5%).

The current P/E of 16.50X is well below the median value of 20.37X over the past year and compares favorably with the S&P 500 and the related industry. So the shares are a bargain at these levels.

The shares carry a Zacks Rank #2 (Buy).

Hub Group, Inc. (HUBG - Free Report)

Oak Brook, IL-based Hub Group is a supply chain solutions provider, offering a whole gamut of transportation and logistics management and brokerage services in North America. With its 1,000 tractors and 4,600 trailers (including driver staffing, management, and infrastructure) and approximately 43,750 dry, 53-foot containers, 450 refrigerated, 53-foot containers; and another approximately 250 dry, 53-foot containers on lease, Hub Group offers truckload, less-than-truckload, intermodal, final mile, small parcel and a host of other services. It primarily serves the retail, consumer products and durable goods industries.

The Transportation – Services industry (top 36%) to which Hub Group belongs is also a part of the supply chain, so many of the trends discussed above for Forward Air also apply in this case.

Additionally, the company announced very strong results for the last quarter, with earnings beating by 77% on revenue that beat by over 9%. Earnings jumped 406% from the prior year while revenues increased 41%.

Analysts got excited with the strong showing, sending current-quarter estimates up 63 cents (41%) in the last 7 days. In the last 30 days, estimates have increased a total 68 cents (45%). 2022 and 2023 estimates have also soared a respective $1.66 (27%) and 71 cents (13%).

Its current P/E of 9.02X is also below its medial level of 16.99X over the past year and the S&P 500, which makes them cheap by both measures.

The shares carry a Zacks Rank #2.

M/I Homes, Inc. (MHO - Free Report)

Columbus, OH-based M/I Homes designs, constructs and sells single-family homes and attached townhomes under the M/I Homes brand name in Ohio, Indiana, Illinois, Minnesota, Michigan, Florida, Texas, North Carolina and Tennessee. It targets first-time, millennial, move-up, empty-nester and luxury buyers. The company also purchases undeveloped land to divide into lots for the construction of single-family homes, as well as for sale to others. In addition, it originates and sells mortgages; and provides title insurance policies, examination and closing services to purchasers of its homes.

There is a historical shortage of single-family homes in particular, which makes this a hot segment. And the strong underlying demand coupled with low inventories in the housing market in general is also leading to constantly increasing prices. So while mortgage rates continue to rise in response to the Fed and the high prices push out some buyers, the prices are allowing absorption of the rising input and labor costs.

Companies are still seeing favorable operating metrics. One constraint that builders continue to see is the availability of lots. But this shouldn’t be as big a factor for a company like M/I Homes because it is in the business of developing lots as well. Overall, the Building Products - Home Builders industry to which it belongs is in the top 29% of Zacks-classified industries, so operating conditions remain favorable.

In the last quarter, M/I Homes beat earnings estimates by 6% while missing revenue estimates by about 3%. Reported revenue was up around 4% and earnings up 11%. In the last 7 days, the current-quarter estimate has increased 23 cents (a little over 6%). The estimates for 2022 and 2023 are up a respective 86 cents (about 6%) and 69 cents (4%).

M/I Homes shares are trading at just 3.16X P/E, which is ridiculous compared to the S&P 500 but also below the industry’s 4.65X. Moreover, it is below the median level of 4.08X over the past year, indicating the existence of upside potential.  

The shares carry a Zacks Rank #2.

MaxLinear, Inc. (MXL - Free Report)

Carlsbad, California-based MaxLinear provides radiofrequency (RF), high-performance analog, and mixed-signal communications systems-on-chip (SoCs) solutions for the connected home, wired and wireless infrastructure, and industrial and multi-market applications worldwide. Its products integrate various portions of a high-speed communication system.

The product range includes broadband radio transceiver front ends, data converters, embedded systems and software architecture, and architecture and system design for highly integrated end-to-end communication platform solutions. The products are sold to electronics distributors, module makers, original equipment manufacturers (OEMs), and original design manufacturers (ODMs) through a direct sales force, third-party sales representatives, and a distributor network.

In the last quarter, MaxLinear reported an earnings surprise of 33% that came on top of a 2% sale surprise. MaxLinear is seeing strong growth across its served markets on the strength of its comprehensive product portfolio and the accelerating pace of new product launches, particularly in connectivity, fiber-to-the home broadband, optical, and wireless infrastructure markets. It continues to take share in Wi-Fi and management expects this business to more than double this year and also grow very strongly in the next.  

Encouraged by the strong showing, analysts have raised their estimates. The Zacks Consensus Estimate for the current quarter has therefore improved 10 cents (11%) in the last 7 days. The current year estimate increased 36 cents (10%) while the estimate for 2023 increased 43 cents (11%).

But prices have clearly not caught up as the shares are still trading at 14.13X, which is below the median level of 26.4X and trails both the industry and the S&P 500. Definitely the time to go for the shares!

MaxLinear belongs to the Zacks-classified Semiconductor - Analog and Mixed industry, which is a top 21% industry. Along with the Zacks #2 rank, this is a solid indication of upside potential.

The shares carry a Zacks Rank #2.

3-Month Price Performance

Zacks Investment Research
Image Source: Zacks Investment Research