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As the stock market saying goes, a rising tide lifts all boats. As we have learned in recent days, unfortunately, the reverse is also true.
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New concerns about the latest variant of the coronavirus have created widespread weakness in U.S. stocks. The early winners of the pandemic and vaccines were exceptions, but most stocks faced selling pressure.
It remains to be seen how the Omicron crisis will develop. In the meantime, what we do know is that many stocks have become more affordable, if not cheap.
And with the holiday shopping season approaching, some of the most intriguing buying opportunities can be in retail. Like other industries, retailers have been plagued by supply chain issues and Omicron’s potential impact has not helped.
Some retail businesses may return to survival mode, while others are likely to outperform in today’s environment. Here are three likely outperformers whose stocks are selling.
Is the drop in MercadoLibre shares a buying opportunity?
MercadoLibre (NASDAQ: MELI) is a retailer that doesn’t have to worry about the potential for slowing pedestrian traffic. The so-called “Latin American Amazon” operates a leading e-commerce site south of the border with a particularly strong presence in Brazil (which accounts for over half of total revenue).
This year, MercadoLibre sales are set to increase by 75% and profitability will be restored after the 2020 breakeven point. The outlook for 2022 is also strong. Analysts are forecasting a 36% increase in sales and more than double earnings per share to reach record levels. In addition to the strength of Marketplace core business, the fast growing MercadoPago FinTech platform and the MercadoEnvios logistics segment are expected to make a healthy contribution to sales.
MercadoLibre stock will close November on a three-month losing streak for the first time since 2019 due to margin issues and the potential for an economic slowdown in its major markets. After going over $ 2,000 at the start of the year, it is trading at close to $ 1,200. The Street remains unanimously bullish on MercadoLibre. The five companies that have reiterated their buy ratings this month have price targets of $ 2,100 or $ 2,200. This one wrote ‘buy the dip’ everywhere.
Is Best Buy stock oversold?
Best Buy (NYSE: BBY) is another retailer with a vacation stock sale. It has fallen 25% since November 22sd peak creating a good deal for a company with a positive long-term outlook.
Hosting a classic hockey stick rally once the calendar hits October, Best Buy apparently couldn’t go wrong. Then the third quarter earnings came in. As profits beat expectations, a weak outlook in the fourth quarter scared investors, causing a high volume spread. To make matters worse, Best Buy has become the latest retailer to be hit by organized theft activity that is dragging down profit margins and making it harder to retain workers who are already hard to find.
But there is a light at the end of the tunnel here. In the short term, inventory issues and the pressure to reduce prices could indeed make the results of the holiday season less than cheerful. Higher spending to prevent theft through security additions and technology won’t help.
The good news, however, is that Best Buy doesn’t have a demand issue and in fact it’s a big plus. Generous consumer spending should continue to drive in-store and online sales. That’s why management has raised its outlook for 2022, although that got lost in the reshuffle.
Best Buy stocks are trading at 12 times next year’s earnings versus 20 times for the S&P 500. Sell volume is slowing and oversold conditions are setting in. The drop is small and the increase is high for Best Buy shareholders.
Is the Children’s Place share undervalued?
Place des enfants (NASDAQ: PLCE) the stock is up 70% this year, but down 25% from its November high. The baby and youth clothing retailer has been dragged lower than the rest of the retail group and has no specific major issues to contend with.
In fact, a restructuring and increased focus on digital has put Children’s Place on a streak of outperformance. In the final quarter, it beat earnings expectations for the fourth consecutive time and management noted a good start to the all-important fourth quarter. Next year, operating margins are expected to increase and profitability will build on an exceptional 2021.
Thus, the downward pressure on the shares of Children’s Place is closely linked to the macro. This is a good thing because it made the stock attractive mid-cap value at 8x the earnings over time.
Since the third quarter update, businesses on the sell side have remained bullish on Children’s Place as a long-term investment in the U.S. consumer and demand for high-margin children’s clothing. Three analysts called the $ 84 stock a buy with price targets between $ 130 and $ 139. Even Citigroup’s more cautious maintenance rating and the $ 115 target point to a significant uptick. Children’s Place is a great place for value investors to shop this holiday season.