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By Will Ashworth
| August 13, 2018
One of the best momentum stocks to buy of 2018 recently got a rude awakening from an analyst. On July 20, Credit Suisse analyst Judah Former downgraded discount retailer Five Below (FIVE) to “neutral” from “outperform” after its stock gained more than 125% over the past year.
“[Five Below] remains one of the most differentiated concepts in retail … and operates the quickest new store return model we have seen,” Frommer wrote in a note to clients. “That said, we see risk/reward as balanced at these levels given the stock’s material outperformance.”
There are two schools of thought when it comes to momentum stocks to buy and sell. The first philosophy is never begrudging a profit. The second is always let your winners run and cut your losses quickly. Which one is correct?
They both depend on your investment psychology. If you’re averse to risk, the first school of thought will serve you better. If you’ve got a no risk, no reward personality, however, you’ll find comfort exercising the second philosophy. The one thing you shouldn’t do is use both. Commit to one and stick with it through the good times and bad. If you’ve done your homework, the odds are good you’ll do well over the long run.
For the purposes of this article, I’m recommending seven momentum stocks to buy with market caps greater than $2 billion that are up more than 100% over the past year … and Five Below could be on the list. If you follow the first philosophy, you’re welcome to read along, but I don’t recommend you take a bite out of any of these given your temperament. You’ll thank me later.
Prices and data are from the original InvestorPlace story published on Jul. 27. Click on ticker-symbol links in each slide for current prices and more.
Courtesy Mike Mozart via Creative Commons 2.0.
I said I might go with Five Below and sure enough, I did. Up 116% over the past 52 weeks, I get the analysts’ position. It’s not as if he lowered the discounter to “sell” or something like that. In fact, he kept the 12-month target of $110, giving you 12% potential upside.
I’ve been a fan of the company for over a year suggesting in May 2017 that it was a cash-rich, debt-free stock to buy that would clobber the market — and it did gaining 86% in the 14 months since. A big part of my argument rest with the retailer’s California expansion. At the time it had 12 stores open in the state. In 2018, it plans to open 13 stores in California leaving it with approximately 25 by the end of the year.
Later in 2018, Five Below will open a store in Manhattan, its first in the city. How it does there could be the difference between a good stock moving forward and a great one.
Either way, it’s got a solid plan for growth and is financially sound. What more could you ask for from a momentum stock?
Weight Watchers (WTW) stock is a lot like the chicken or the egg question. Did Oprah Winfrey’s investment in the company drive the stock higher, or did the company’s improving performance drive Oprah to the company?
A little of both I think.
However, I happened to be watching an episode of Oprah Winfrey’s show Season 25: Behind the Scenes on OWN TV recently that looks back on her final year on the air. In it, Jennifer Hudson is scheduled to be on the show to discuss her weight loss as a result of using Weight Watchers products.
Although Oprah wasn’t too happy about Hudson disappearing to Dallas in the middle of a Chicago snowstorm threatening her appearance, I’m pretty sure the singer’s tale got her thinking about her own battles with weight. Watch the show and you’ll get a good idea of why Oprah’s a multi-billionaire. Her brain just works better than most people’s.
Winfrey sold about a quarter of her stake earlier this year — I guess she’s both types of investor — but remains committed to the company and its products. I’d only sell if she ever walked completely. Until then, enjoy the ride.
Talk about a retail stock that’s been to the desert and back.
Urban Outfitters (URBN) seemed ready for the trash heap a year ago but it’s making a comeback.
Mad Money host Jim Cramer recently discussed the company’s stock on his show suggesting that a strong economy combined with a fashion offering that’s back in style has had a lot to do with the retailer’s stock resurgence.
“Even after this move, Urban Outfitters trades at only 17 times next year’s earnings estimates,” Cramer noted July 17 on his show. “I’d be a buyer right here, although I’d like to buy some more into weakness.”
Back in April 2014, I suggested URBN stock would return to health once consumer spending increased and retail got a little healthier. At the time it was trading around $38.
Yes, I was a little early to the party, but now that it’s closing in on a 52-week high, what I thought would happen in 2015 or 2016 is coming to fruition in 2018 and 2019. Down as low as $17 as recently as last June, it delivered same-store sales growth of 10% in Q1 2018, more than doubling its operating income and operating margin in the process.
I see this as the beginning of an extended period of strength for the Philadelphia-based specialty retailer.
Ever since Canada Goose (GOOS) announced better-than-expected fourth-quarter earnings June 15, its stock’s been on a major roll up 35% in the month and a bit since.
How good was Q4 2017?
Analysts expected a seven-cent loss, four cents better than a year earlier; Canada Goose delivered a seven-cent profit. On the top line, analysts were expecting $50.3 million; it came in a lot higher at $94.7 million, almost double last year’s sales.
Canada Goose is doing a great job balancing its wholesale and direct-to-consumer businesses creating the perfect shopping experience for its loyal customers.
Analysts are scrambling to catch up to the Canada Goose story which caught them totally off guard. At the beginning of the year, the consensus was that its stock would hit $35 by the end of the year. Well, it’s almost double that with lots of gas left in the tank.
Jim Cramer was an earlier believer recommending it when it went public back in March 2017. And he still likes it.
“These guys know exactly what they’re doing,” Cramer said July 17. “I’m just glad the stock has pulled back from its recent highs so you can pick up some Canada Goose into weakness.”
Pick it up indeed while it’s still trading in double digits.
It’s not very often that an entrepreneurial CEO and founder has two stocks up more than 100% over a 52-week period at the same time but that’s exactly what Jack Dorsey’s experiencing at the moment.
Square (SQ) is up 170% over the past year through July 25 while Twitter (TWTR) is up a more pedestrian 121% over the same period.
As a result of their revivals over the past year, Jack Dorsey’s position within the Bloomberg Billionaires Index has improved dramatically. Year to date through July 26, Dorsey’s gained $2.8 billion, virtually doubling his wealth in just seven months. Except for the people at the very top, Dorsey’s had himself the year of a lifetime.
And, it looks like it’s going to keep getting better if Square’s new contracts for preventing customer chargebacks takes off — which it should. Chargebacks are a major problem for service-oriented and retail companies; the abuses that take place by consumers hell-bent on scheming the system are legendary.
“Now you can’t just say ‘I bought this T-shirt, paid them, but I don’t like the color. I want my money back, I expected something different,’” Kay Feker, Square’s Risk Program Manager told The Verge. “The business owner will now prove it: here’s the color, it was indeed delivered as described.”
A free service; It’s a brilliant move because the more money customers lose from chargebacks, the less money Square makes from their relationship.
This is one reason why Dorsey and Square are winning.
In April, I suggested that Brown-Forman (BF.B) should buy Boston Beer (SAM) to use as a platform for buying other craft breweries. Perhaps others were thinking the same thing as its stock is up 51% in the three months since.
I’m not saying this for a pat on the shoulder; I’m mentioning it because it reminds me how far the stock has come in a 52-week period. Last June it was trading around $132, its lowest point since 2012.
Granted, a lot of competition (too much, in my opinion) has entered the craft beer business in the prevailing 60 months, but as the industry’s elder statesman, it deserved better from investors and now it’s finally getting it.
InvestorPlace’s Vince Martin didn’t see the glass calling for investors to sell SAM stock in early February citing a lack of growth and an exorbitant valuation for its demise.
“Outside of Sam Adams, the portfolio isn’t strong enough to drive growth,” Martin wrote February 23. “Angry Orchard cider already is seeing declining depletions. That product was launched just six years ago. Twisted Tea and Truly Spiked & Sparkling grew in 2017 — but not enough to offset falling sales elsewhere.”
Frankly, as long as the buyout wildcard remains in play and the company produces decent results, I see its stock continuing to move higher until someone bigger finally pulls the trigger.
It hasn’t been smooth sailing for Canopy Growth (CGC) since listing on the NYSE in late May with its stock down a couple of dollars in the two months since.
Everyone and their dog is waiting to see how D-Day — the day marijuana is legalized across Canada — shakes out in terms of its retail distribution, etc.
Nobody knows who the ultimate winners will be but CEO Bruce Linton’s move last year to sell 9.9% of the company to Constellation Brands (STZ) definitely puts it at the front of the pack.
Edibles and drinkables are going to be even bigger than the weed itself because there are a lot of people out there who want to take the edge off a long day without sparking up or rotting one’s liver in the process.
“We expect we’ll be able to make beverages and those beverages will be no calorie, they will cause you to feel upbeat,” Linton told Jim Cramer July 11 on CNBC. The two companies bring the appropriate knowledge to the table to make their partnership a huge success.
For now, Canopy needs to continue executing its plan without any thought about profits. Those will come soon enough.
This article is from Will Ashworth of InvestorPlace. As of this writing, Moon did not personally hold a position in any of the aforementioned securities.
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