Nike Inc. (NKE): Leading global footwear and apparel company Nike is off to a rough start in 2022: Shares are down more than 30% through May 27. It has had to exit the Russian market, and analysts also fear that Chinese sales may slump amid the renewed COVID-19 restrictions in that country. Throw in supply chain issues and inflation, and it seems like a perfect storm for Nike. However, that’s led to an unusually sharp sell-off in Nike’s share price; the stock has fallen from a peak of $179 last year to roughly $117 now. At this price, Nike is selling for about 25 times forward earnings. That might not sound like a deal at first glance. However, analysts see the company growing earnings at more than 20% in both 2023 and 2024 once the current supply chain and pandemic-related headwinds let up. By the time earnings growth revs up again, Nike shares should be trading much higher than where they sit today.
Estée Lauder Cos. Inc. (EL): Estée Lauder is one of the world’s largest cosmetics sellers. Like Nike, it has performed incredibly well in recent years, in large part due to a strong direct-to-consumer sales channel. Selling through digital avenues has allowed Estée Lauder to raise its profit margins and has insulated it during the pandemic when many department stores and malls were not operating. Arguably, investors became a bit too enthusiastic about Estée Lauder as an economic reopening play; EL stock had rallied nearly 175% between the depths of the pandemic and its peak in late 2021.
This year, however, shares are down more than 31% through May 27. This has put Estée Lauder shares back to 25 times earnings. That’s a more than reasonable price for a global upscale consumer products brand that historically has grown earnings at a double-digit annualized rate.
Netflix Inc. (NFLX): Netflix has been one of 2022’s most disappointing stocks. Shares of the streaming giant have lost two-thirds of their value year to date. A large portion of these losses came following the company disclosing that it had started to see subscriber growth dip into negative territory. After years of steady and seemingly unstoppable subscriber growth, Netflix now faces a challenge trying to get its user metrics pointed higher again.
Broadly, it seems that so-called subscription fatigue has become a problem, as consumers look to trim recurring costs in the wake of the current inflationary pressures. On top of that, with the economy largely reopened, people are willing to spend less on at-home entertainment options. Regardless, Netflix is still generating a stunning $30 billion per year in subscription revenues. For investors who believe the company can solve its content spending and quality issues, this entry point could be an absolute steal.
Lennar Corp. (LEN): Homebuilder stocks have looked cheap for the past six months. However, investors have been afraid to buy into the sector due to rapidly rising interest rates. Presumably, new home sales will drop off sharply as mortgage rates keep going up and up. Over the past month, however, the tone has changed. Interest rates topped out toward the beginning of May and have now pulled back significantly. Meanwhile, there’s chatter of the Federal Reserve starting to pivot toward a softer policy around more rate hikes. With economic data and retail sales figures rolling over, there are signs that inflation worries may start to abate. That’s just what homebuilders such as Lennar need.
Lennar, in particular, is selling at just five times this year’s projected earnings. As long as mortgage rates stabilize and the Fed can engineer a soft landing for the economy, homebuilders should deliver excellent returns over the next 12 months.
VF Corp. (VFC): VF Corp. is a large apparel retailer. It operates a wide variety of brands including Vans, The North Face, and Timberland, among others. VF Corp. has an interesting approach to its business: It buys up brands for low valuations and then attempts to grow and reposition them. It then often sells or otherwise divests brands once they achieve a more generous valuation. This method protects VF Corp. from wipe-out risk if any one brand fails to hit its objectives, as there are always plenty of other irons in the fire.
VFC stock is also appealing for income investors, as the company is a “Dividend Aristocrat” that has increased its dividend for 49 years in a row. Shares yield 4%, a generous dividend in the current marketplace. And with shares down sharply on supply chain worries, VFC stock is now selling for less than 16 times earnings.