Two “Perfect 10” Consumer Goods Stocks to Fight Inflation

Imagine making investment decisions in an ideal world with the absence of war, favorable interest rates, demand-supply equilibrium, and enough disposable income at consumers’ discretion to spend on goods and services. One would have a plethora of stocks to invest in with an appealing risk-reward appetite.

Now, coming back to the reality of a slew of uncertain economic factors and limited resources, investors are fraught with making the right investment choices that suit their palate.

Don’t worry! TipRanks has the perfect solution to the problem. The TipRanks Smart Score tool gives investors a simple way to gauge a stock’s performance. This is a data-driven score that evaluates a stock based on eight key market factors. Six of these are based on TipRanks’ unique data and take into consideration Wall Street analyst consensus; whether hedge funds are buying or selling shares; what the companies’ insiders are up to on the open market; and the opinion of financial bloggers, along with technical and fundamental indicators.

Notably, since 2016, Top Smart Score stocks (available only to TipRanks Premium Members) with a “Perfect 10” score have significantly outperformed the S&P 500, generating an alpha of 76.1% over the index, indicating that at volatile times, stocks with the maximum Smart Score offer market protection.

Let’s look at two consumer goods stocks with a Smart Score of “Perfect 10,” which implies that these stocks are some of the best bets in the sector at current times.

Lowe’s Companies (LOW)

Lowe’s is a home improvement retailer with operations in the U.S., Canada, and Mexico. With the pandemic-mandated stay-at-home practices, the retailer witnessed a boom in the demand for its offerings as consumers spent more time in the convenience of their homes.

The stock has lost 21.2% year-to-date amid a broader market sell-off, and gained more than 5% over the past year. The company boasts of over 19 million customer transactions per week through more than 2,200 home improvement and hardware stores.

In its upbeat Q4 results, the company beat expectations on both the revenue and earnings fronts and also raised guidance for full-year Fiscal 2022.

A rising interest rate scenario deters the home buying interests of consumers, albeit the effects will not be visible in the short term but will roll over in the longer term. However, millennials continue to rent out homes at an accelerated pace, which also boosts industry growth.

With the spring season kicking off soon, the retailer is expecting a resurgence in demand for its offerings. Lowe’s typically organizes its Lowe’s SpringFest event, where customers are welcomed to best-in spring products, virtual experiences, and DIY tours to beautify their homes.

As per Statista, the U.S. home improvement market size in 2021 stood at $538 billion, and by 2025 the market size is expected to grow north of $620 billion, representing a huge opportunity for the players in the sector.

Undoubtedly, Home Depot (HD) is the largest player in the space and Lowe’s biggest competitor. Lowe’s currently trades at 1.48x sales, higher than the industry average of 0.96x sales, but lower than HD’s multiple of 2.13x sales.

Wall Street analysts are highly optimistic about the LOW stock, with a Strong Buy consensus rating based on 12 Buys and two Holds. The average Lowe’s price forecast of $275.77 implies 37.4% upside potential to current levels.

Lowe’s Stock Analysis

Remarkably, according to TipRanks’ Smart Score, Lowe’s scores a “Perfect 10,” indicating that the stock is highly likely to outperform the market.

Bloggers and news articles are bullish on the stock. Meanwhile, in the last quarter, hedge funds bought 2.0 million shares of LOW stock, and retail investors have increased their exposure to the stock by 7.1%, indicating an inclination towards the retailer’s future performance.

Dollar Tree (DLTR)

Dollar Tree is an American discount retailer that traditionally sells products for $1 or less across the U.S. and Canada. The company operates more than 16,000 stores under the brands Dollar Tree, Family Dollar, and Dollar Tree Canada. The company’s offerings include quality everyday merchandise such as candy and food, housewares, seasonal goods, health and beauty care, stationery, toys, party goods, and other consumer items.

Surprisingly, the DLTR stock has gained 10.6% year-to-date even amid the broader market sell-off. Similarly, the stock has gained more than 33% during the past year.

The retailer reported mixed Q4FY21 results, with earnings topping expectations and sales missing expectations. Furthermore, the retailer’s guidance for FY22 also provided a mixed outlook, with earnings above and revenue below analysts’ estimates.

Hit by the historically high inflation and absence of state cash stimulus, which incentivized shoppers last year, the company decided to move its price range for its majority of product lines to $1.25 in the U.S. Additionally, DLTR also continues to expand its $3 and $5 Plus assortment in its stores to skirt the diminishing margins.

Moreover, the company also noted that persistent supply chain and logistics issues have raised the prices it pays to move the products to stores, further hitting their bottom lines.

Although the move has helped boost the retailer’s margins, it has also driven away consumers to competitors like Dollar General (DG). Currently, DLTR trades at 1.35x sales, above the industry median of 0.96x, but below the multiple of DG of 1.57x, making it a cheaper investment option.

Notably, Wall Street analysts have awarded the DLTR stock a Strong Buy consensus rating based on 13 Buys and two Holds. The average Dollar Tree price forecast of $173.33 implies 11.1% upside potential to current levels.

Dollar Tree Stock Analysis

Furthermore, according to TipRanks’ Smart Score, Dollar Tree scores a “Perfect 10,” indicating that the stock is highly likely to outperform the market.

Bloggers and news articles are bullish on the stock. Meanwhile, in the last quarter, hedge funds bought 3.6 million shares of DLTR stock, and retail investors increased their exposure to the stock by 8.3%. Even corporate insiders have bought 66.3K shares of the stock over the last three months, reflecting optimism about the company’s future potential.

Bargaining Points

Although the ongoing geopolitical environment and rising inflationary pressures are changing consumer behavioral patterns, both Lowe’s and Dollar Tree offer comforting insights, according to the TipRanks Smart Score tool.

With a proven track record of generating above-average market returns, investors can safely invest in the Top Smart Score Stocks in the TipRanks universe to protect their investment in the volatile market.

This article was originally published on this site