Congratulations! You survived another summer. The kids go back to class, and the adults have a couple of months to catch our collective breath before the madness of the holidays begins. One aspect of your life that you may have neglected this summer? Your investment portfolio. If that's the case, it's not time like today to get back in the swing and find some top stocks that can help you reach your financial goals.
To help you get started, we asked five of our top contributors to put their best ideas forward, and they came with a powerful collection of companies: leading online stylist and apparel retailer Stitch Fix (NASDAQ: SFIX) specialized software manufacturer Autodesk (NASDAQ: ADSK) under-appreciated malls owner Simon Property Group (NYSE: SPG) fantastic turning operation Lul Athletica (NASDAQ: LULU) and tiny – but rapidly growing – engineering company NV5 Global (NASDAQ: NVEE) .
A Long-Lasting Clothing
Jeremy Bowman (Stitch Fix): As an investor, there is nothing I like more than when a growth stock is sold. That's exactly what is happening right now with Stitch Fix, the custom, on-demand styling service that is disrupting the US apparel market of $ 342 billion.
Since it recently peaked on July 1, the stock has fallen 40%, although there has been little direct cause for that slide. Instead, investors appear to have fled because of the same fears that have plunged the stock since the IPO in 2017: the simmering trade war with China and Amazon 's interest in the custom clothing space.
Both of these threats seem excessive. Indeed, a trade war with China and the tariffs that came with it could help Stitch Fix. Much of the US clothing industry is already struggling with pressure from growing e-commerce companies such as Amazon and Stitch Fix, and has found itself in a surplus of stores. Therefore, tariffs are more likely to have a detrimental effect on Stitch Fix's swollen competitors than on Stitch Fix itself. A complete trade war can help get more of Stitch Fix's competitors out of business.
As for Amazon, the e-commerce giant has come out as a threat to Stitch Fix for a while with programs like Prime Wardrobe, and it just launched its own copycat styling service. However, clothing has proven to be a challenging business for Amazon because the highly fragmented industry requires the kind of soft touches and skills that have often been a weak spot for the algorithmically driven tech giant. In addition, Stitch Fix has an almost 10-year lead over Amazon with its own styling service, and other competitors' struggles show that this is a difficult business to get right.
The long-term case for Stitch Fix is self-evident. The company is founded to take advantage of two huge secular headwinds in its industry: e-commerce and personalization. It is the leader in its category. It is profitable and has been for several years, and management targets 20% to 25% revenue growth in the long term.
However, now seems a particularly good time to pick up Stitch Fix shares, since in addition to the negotiating price, there are a number of positive catalysts that will boost the next round of earnings and long-term growth.
First, we are back in school during the shopping season. Stitch Fix launched its bid on the children's clothing market in July last in time for the 2018-to-school season, but with a new year to raise awareness for the new segment and expand its product range, it's a good option that Stitch Fix Kids will see significant growth this quarter. The bankruptcy of Gymboree earlier this year, a leading children's clothing retailer, can't hurt either.
Stitch Fix U.K., the first hit of the international market, launched in May, represents another significant growth path. The UK seems especially promising for Stitch Fix because online clothing shopping is already significantly more popular there than in the US, and CEO Katrina Lake said in a previous earnings interview that the company's personalization model will make it more differentiated in the UK than it is in the domestic market.
The company's fourth-quarter income report will be released on October 1. Analysts expect revenues to jump 35.9% to $ 432.5 million with a boost from the UK launch, but to see earnings per share fall from $ 0.18 to $ 0.04.
With the sale of the stock over the past couple of months, a promising short-term setup, and a tire revenue report that is expected to show strong growth following expansion with children's line e and the UK, there is a fair chance that Stitch Fix- Shares may increase by 50% or more over the next month.
Brian Feroldi (Autodesk): One of the most challenging aspects of investing is finding companies that can grow at a predictable rate for years. It's not easy to do in today's hyper-competitive market, but I'm sure Autodesk is up to the task.
Autodesk is a software company that makes products for architecture, engineering, design, manufacturing, media, education and entertainment industries. It is best known as the manufacturer of AutoCAD, which is a 2D and 3D computer-aided draft program that allows users to create highly detailed drawings and design plans. But Autodesk also sells dozens of other leading products including Revit, Maya, Fusion 360, BIM 360 and more.
Autodesk sold its software using a licensing model for decades, but a few years ago it made the switch to a software-as-a-service model. It was a painful transition in the short term – revenues, profits and free cash flow all fell immediately – but the company is now reaping the benefits of the business model change. The vast majority of the company's revenues are now recurring and growing rapidly, gross margins are high and climbing, and the company is starting to get adjusted profits and free cash flow.
What is so exciting about the "new" Autodesk is that its high growth rates look like they are here to live for at least two reasons.
First, the company's existing customers think the software is so useful that they tend to spend more on Autodesk's products each year. In the previous quarter, management stated that its net sales retention area – which measures existing customer use from period to period – landed within management's target range from 110% to 120%. This means that the company is able to increase revenue by at least 10% without adding a single new paying customer .
Second, a large number of older customers have not yet upgraded to the company's subscription model. Autodesk estimates that more than 18 million people use their software on a regular basis, but only about 4.3 million of them have made the switch. This means that around 13 million users are actively using Autodesk's older products that were purchased under the licensing model many years ago. Management is actively working to convince this group to upgrade to the subscription software by sending out constant update reminders and rolling out new features that make the software more useful (for example, offering augmented reality and virtual reality features). The company should be able to convince most of them to switch over time.
With all these factors added together, Autodesk appears to be growing at the top of the line at a strong rate in the years to come. When accounting for a steady margin improvement, the operating facility should help increase the bottom line even faster (Wall Street currently expects 86% annual profit growth over the next five years).
Autodesk's stock isn't particularly cheap right now – stocks trade for more than 11 times sales and 30 times next year's revenue estimates – but I've learned that it's almost always worth paying a premium to own a business of high quality. That's why I recently added a few shares of this high growth stock to my portfolio and would suggest you do the same.
A shopping center operator who is on another level
Matt Frankel, CFP (Simon Property Group): When it comes to retail, there are many that I would stay away from. A wave of closures of retail stores and bankruptcies has swept the industry, and it's probably not done yet.
However, when it comes to mall owners and malls, the Simon Property Group is simply in a separate league. This real estate investment trust, or REIT, is one of the largest property owners of any kind in the United States and does not deserve to be placed in the same category as the rest of the industry.
Simon owns a large portfolio of upscale malls and retail properties. Many of Simon's shopping malls are among the most valuable retail outlets in the world – especially those run under the company's Mills brand. Simon also has a dominant market share in the outlet industry. There are eight major store operators in the United States, and Simon owns about twice as much square footage as the other seven combined .
This scale gives Simon some tremendous benefits. First, it has a ton of capital to invest in their properties to keep them one step ahead of the competition and, more importantly, fight e-commerce and win. Simon's malls have been destinations for a long time, but in recent years Simon has invested a lot in adding mixed-use items to his properties. Many of Simon's properties include hotels, areas of co-operation, apartments, casinos, entertainment venues and other non-returnable items. Simon also invests in many future trends, such as esports, to keep the properties as current as possible.
This not only creates a portion of Simon's revenue that is practically immune to e-commerce and other headwinds in retail, but also creates a built-in source of foot traffic for Simon's tenants. In fact, Simon's malls have had such success in bringing shoppers in the door that many retailers who have traditionally been online have just begun to open stores in Simon's malls (Untuckit, for example). And Simon's tenants have reported average sales per square foot growth of 3.5%, not a decline.
One thing that may sound alarming at first is that Simon has a good space occupied by struggling department stores. The 65 remaining J.C. Penney stores and 25 remaining Sears locations in Simon's malls account for more than 8% of the company's total square footage. And though I wouldn't place it in the same boat as the other two, Macy's makes up 12%.
However, Simon sees this as one of the greatest opportunities . By redeveloping these existing areas as they become available for mixed-use items, Simon can add valuable features to their malls at a significantly lower cost than building them from scratch.
Due to headwinds and recession in the market, Simon trades for just over 52 weeks low and has a well covered dividend yield of 5.7%. Now can be a great time to add this mall operator with huge competitive advantages to your portfolio at a great discount.
Strike a pose
Dan Caplinger (Lululemon): Many successful companies are often swapped for a single failure that destroys their business. Lululemon Athletica made such a mistake several years ago, and it came within the breadth of going from a promising high-growth leader in the sportswear industry to another story of unfortunate failure. Yet, unlike so many of its peers in the retail industry, Lululemon managed to achieve full recovery, and the investors who lived along the way have benefited greatly from the yoga clothing company's subsequent rise back to the top of the athletic wardrobe.
Lululemon's problems stemmed from a quality control issue in 2013 that threatened the entire foundation of the yoga clothing business's business model. At that time, Lululemon became famous for its premium yoga address and accessories, and customers were willing to pay for the company's products because of their status and high quality. Attempts by Lululemon to connect with instructors at major yoga studios throughout North America also contributed to the company's brand awareness and built up sales.
Still, complaining that some of the yoga pants were clean enough to see through led some customers to conclude that Lululemon may be stumbling upon the materials that had originally earned it its strong reputation. Moreover, the CEO of the Yogo Clothing company failed to deal with the situation quickly and effectively, instead blaming it on some of Lululemon's own customers. This step of error created an even greater uproar.
But eventually, Lululemon found a way out of the bond. Replacing the CEO was an important first step toward regaining customer trust in the company, and Lululemon worked hard to ensure that quality control issues would not recur. Even with all this work, it took several years for the retailer to return to its former growth trajectory.
Now things have never looked better for Lululemon. In the last quarter, Lululemon had a revenue growth of 20% from the previous year, which helped to increase net revenues by almost 30% from the previous year. Comparable sales are increasing at double-digit percentages, and cost control has also helped Lululemon increase margins. Customers can now find more Lululemon store locations than ever, as the store chain has returned to expansion mode.
Lululemon is scheduled to issue a quarterly report in early September, and investors are enthusiastic that the yoga clothing specialist will be able to continue to grow. With strategic steps to go beyond the core market to attract a greater number of yoga enthusiasts, Lululemon believes it can bring significant growth. As sportswear becomes more accepted as casual wear for all occasions, the strong reputation that Lululemon has rebuilt should be an even greater asset.
Long-standing investors in Lululemon have already reaped much success from the yoga product. dealer, but the company has much more potential growth ahead. Now is a smart time to take a closer look at how Lululemon can overcome headwinds that many dealers in other niches have faced and continue to provide strong returns for shareholders.
Buy on cyclic fear; hold for decades of growth
Jason Hall (NV5 Global): This small infrastructure engineering and consulting company has seen the stock price fall sharply; it is down 27% in recent months, and even after a strong upturn earlier this year, the stock price is still 32% during the high period, reached about a year ago.
Why has NV5's stock dropped so far so fast? In short, because the infrastructure projects it is consulting on are complex, expensive and financed by either government spending or capital investment from cyclical industries. And with such great concern about the state of the global economy and real fears of the recession, investors are joining companies that have seen great cyclical exposure and prioritize "safer" investments.
For investors who are smart enough to see beyond the next quarter or even the next year, it is an excellent opportunity to buy. In short, NV5 is founded on many years of growth in the future. There is a huge huge need for infrastructure on a global basis: By 2040, almost $ 90 trillion must be spent to meet the world's infrastructure needs. This is a product of both global middle class and urban population growth, as well as the need to modernize and improve infrastructure in the United States and Europe to remain competitive with the rest of the world.
So why NV5? Because it has a highly successful executive team, including the CEO, who is also the founder and largest shareholder, with about a 25% stake in the company.
But why now? you might ask. In short, because while I know no more than the next person when the next recession will happen – nor what its impact on infrastructure spending will be – I know that the NV5 continues to absolutely nail it and represents an incredible combination of value and growth at recent prices.
Through the first half of 2019, turnover increased by 23%, adjusted earnings per share increased by 17%, and cash flows in operation increased 61%. Moreover, it is not just acquisitions that drive growth; Organic sales increased by 6% last quarter as the company continues to leverage its ability to offer more services to meet customer needs on large, complex projects.
Another example of how the strategy pays off is in the backlog, which has increased 43% since last year and passed $ 450 million last quarter.
Furthermore, management expects the business to grow in the second half of the year, increase its full-year guidance and now requires $ 535 million in revenues and revenues of $ 2.71 per share. share in the middle of the tutorial. This corresponds to 28% and 17% growth respectively, and it trades at about 22 times that of the income guidance at recent prices.
Concerned stock price may fall even further from here? Maybe another 20% or 30%? Keep this in mind: Stocks have almost doubled over the past three years, rising by an incredible 554% over the past five years as the company continues to deliver incredible results, falling 30% from last year's high. Better to buy the excellent business at a reasonable price than get caught on the sidelines and try to pay the perfect price.