Coronavirus, officially named as COVID-19, has given rise to a global pandemic, causing trade disruptions. The rising concerns of the outbreak in China are clearly impacting the global markets, as companies operating or sourcing goods from China remain affected.
Many consumer companies have hinted about business disruptions in China and across Asia due to the deadly virus spread. The companies have warned of soft sales trends due to increased closures of stores, restaurants and cinemas. Additionally, worldwide trade (supply-chain) disruptions due to travel restrictions to prevent further spreading of the epidemic are likely to affect the results of companies with production facilities and suppliers in China and nearby regions.
Prominent consumer companies — including NIKE NKE, Coca-Cola KO and Starbucks SBUX — warned investors of impacts of the virus on their performances.
NIKE was the earliest among the lot to inform investors about the impact of the fatal virus on its results. On Feb 4, 2020, the company announced that it temporarily closed nearly half of the company-owned stores in Greater China in response to the coronavirus outbreak. Consequently, it expects China operations to witness softness in the near term, which should have a pronounced impact on overall results. Moreover, the company yesterday closed its European headquarters after a worker tested positive of the virus.
Last week, the global beverage giant Coca-Cola stated that the COVID-19 will likely hurt first-quarter 2020 organic revenues by 1-2 percentage points, unit case volume by 2-3 percentage points and earnings per share by 1-2 cents.
Is a Dip in Consumer Stocks a Buying Opportunity?
Though the U.S. consumer companies, with operations or suppliers in China, are more likely to suffer from the global virus outbreak, there may be a few hidden winners capable of withstanding the market roils.
The consumer-focused companies’ are poised to benefit from continued innovation in products and efforts to enhance customer experiences. Particularly, retailers have significant growth potential through investments in the expansion of omni-channel experiences with same-day delivery, lockers for picking up goods at stores, and improved online sites and checkouts. Additionally, retailers can leverage data and make use of transformative commerce to turn potential customers into repeat customers.
Despite the pandemic scare, consumers’ confidence in the United States continues to grow. According to the Conference Board, its index of consumer confidence rose to 130.7 in February from 130.4 last month, the reading being at a six-month high. The rise in the reading mainly stemmed from robust economic conditions, with an improved labor market, wages and interest rates. The soaring consumer confidence is an indicator of a likely rise in consumer spending, which accounts for nearly 70% of the U.S. economic activity.
Given the positive consumer trends in the United States, we believe that consumer stocks, which dipped in the market roils last week and hold strong long-term growth fundamentals, actually present an opportunity to buy after the recent market sell-off.
Here, we have zeroed in on four consumer stocks that may be lucrative portfolio additions despite the COVID-19 outbreak. These stocks have a Value Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy Co., Inc. BBY is benefiting from the focus on developing omnichannel capabilities, improving supply chain and containing costs along with strengthening partnerships with vendors. It has been progressing well with programs like Total Tech Support for fixing computers, laptops, appliances, smart home devices and connected devices. At present, Best Buy has a Zacks Rank #2 and a Value Score of A.
The Zacks Consensus Estimate for its current-year earnings has improved nearly 1% in the past seven days. The company’s expected earnings growth rates for the next quarter and the current year are pegged at 2% and 4%, respectively.
The Buckle Inc. BKE is benefiting from the efforts to enhance marketing efficiency, store remodeling and technology upgrades. Moreover, the company has been experiencing positive results across most of its key categories — men’s, women’s and footwear. These factors are contributing to its top-line performance. Buckle has a Value Score of B and a Zacks Rank #2.
Additionally, the Zacks Consensus Estimate for its current-year earnings has moved north by nearly 2% in the past 60 days. The company’s expected earnings growth rates for the next quarter and the current year are pegged at 4.8% and 4.6%, respectively.
G-III Apparel Group, LTD. GIII is witnessing gains from advancements across its power brands namely DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld. Effective merchandising, sourcing and selling strategies have been playing a vital role in boosting the brand. G-III Apparel has a Value Score of B and a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings has moved up by a penny in the past 30 days. The company’s expected earnings growth rates for the next quarter and the current year are 23.6% and 9.4%, respectively.
Ralph Lauren Corporation RL has been on the growth trajectory, backed by stringent cost discipline, and continued investment in brand elevation and other endeavors — including “Next Great Chapter” — which have been aiding quarterly results. Additionally, the strength in international and digital businesses has been a key sales driver. Ralph Lauren has a Value Score of A and a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings has moved up by 0.5% in the past 30 days. The company’s expected earnings growth rate for the current year is pegged at 7.7%.
Shares of Best Buy, Buckle, G-III Apparel and Ralph Lauren have declined 8.2%, 6.9%, 22.6% and 13%, respectively, over the past month. Have a look –
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