The last votes are being counted and investors are waiting on the edge of their seats to see who will be the next US president. Despite the unclear outlook, stocks rose sharply on Wednesday, with the Nasdaq leading the way at 3.85%.
Some view the race to the White House, regardless of the outcome, as a binary event, with stocks generally reacting negatively to these events. The election resolution could thus remove the significant uncertainty that has hit investors hard in recent months.
But what would a controversial election mean for the markets? According to some Street professionals, even if the outcome is contested in a lengthy lawsuit, the Federal Reserve would likely step in, causing stocks to rise higher. If the elections are not contested, another stimulus package would likely come at a faster pace.
With this in mind, we started looking for stocks that are about to outperform, based on multiple metrics. Investing.com's Investing Insights platform takes six key factors used to evaluate potential investments and brings them together into one numeric score, with 10 being the most likely to outperform in the long run.
Using the platform, we located three stocks with a "Perfect 10" Smart Score. Here are all the details.
Vista Outdoor ( VSTO )
First on our list of Perfect 10's, we have Vista Outdoors (NYSE :), which designs, develops and manufactures ammunition, primers, components and related equipment products. With the election potentially serving as a positive catalyst, Wall Street is on board.
B. Riley analyst Eric Wold acknowledges that stocks struggled after Walmart announced it would remove firearms and ammunition displays from its store floors as a precautionary measure to advance potential civil unrest in some markets, but he sees the news as a -issue.
Customers can still purchase these products, they just won't be on display. In addition, Wold argues that firearms and ammunition are unlikely to be impulse purchases and that is why customers would come to the store. Hence, he doesn't think demand will be affected.
Wold added, “While we can understand the headline response to VSTO stocks and the broader shooting sport group, we note that not only do we estimate that Walmart (NYSE 🙂 has already fallen to less than 10% of sales for VSTO last year, but the company already moved the majority of its ammunition shipments from Walmart to other distributors last year. "
Looking at the firearms and ammunition market, demand has skyrocketed, with average monthly gains of about 85% between March and September. According to Wold, this demand could rise even higher after the election.
Based on Biden & # 39; s proposals, a victory for the Democrats could bolster demand. “This has been the case with past Democratic victories, as consumers will stock up on products that may become targets of post-election agendas before such legislation can be passed. However, we also cannot rule out that a Trump re-election win will not be another & # 39; Trump Slump & # 39; would start, but would instead cause additional social unrest and calls for a disbandment of the police that could trigger another round of firearms and ammunition purchases, as seen over the spring / summer, ”Wold explained.
As if that weren't enough, VSTO & # 39; s purchase of Remington & # 39; s ammunition and accessories business could "give an attractive boost to current expectations", according to Wold. He also noted, "In addition, we would expect VSTO to take advantage of the strong brand name associated with Remington to drive growth in that business in the coming years as it is integrated into the company's existing ammunition and shooting operations."
It should come as no surprise, then, that Wold stuck with the bulls. In addition to a Buy rating, he left a $ 30 price target on the stock. Investors could get a 46% profit if this target is met in the next twelve months.
In general, other analysts reflect Wold's sentiment. Buy 4 and hold 1 contribute to a strong buy consensus rating. The $ 30 average price target is in line with Wold's. (See VSTO inventory analysis)
United Natural Foods ( UNFI )
As a leader in grocery products, United Natural Foods (NYSE 🙂 is known as a leading food and meat wholesaler. According to some members of the Street, this Perfect 10 is ready to grow regardless of the macro environment.
MKM analyst Bill Kirk told clients, “United Natural Foods is uniquely positioned to increase its importance with retail partners. With the most complete product range, UNFI has a significant opportunity to cross-sell its services (conventional offers to existing natural / organic customers and natural / organic offers to existing conventional customers. "
The company recently signed a 10-year $ 10 billion deal with Key Foods, allowing UNFI to build a distribution center for the New York subway. This opens up a new market, the analyst believes. As for the relationship with Whole Foods, Kirk does not think it will end anytime soon as it is unlikely that "Whole Foods could get much better terms from UNFI."
"As such, the main risks to the customer are exaggerated, the ability to gain new customers is undervalued and the ability to cross-sell products is undervalued," said Kirk.
Independent of Whole Foods, Amazon could provide a significant opportunity for the company. “Although the relationship between Spartan Nash and Amazon (NASDAQ 🙂 has evolved, UNFI is still growing with the e-commerce giant. Amazon is not required by the deal and Spartan does not cover all regions of Amazon Fresh, ”explained Kirk.
In addition, Kirk believes that, while promotional activity stalled during the pandemic, it will improve in 2021 and in turn support EBITDA. It should also be noted that independent grocers are increasingly important in communities. “Many smaller concepts have fared better than the largest concepts such as Walmart. Habits are sticky, and we think some of that traffic share will stay with smaller stores that are likely more UNFI customers, ”he said.
In view of all of the above, Kirk sees a limited downside with the stock trading at ~ 8x NTM PE and ~ 6x EV / NTM EBITDA.
As a result, Kirk sides with the bulls and reiterates a Buy rating and a $ 26 price target. This goal demonstrates his confidence in UNFI's ability to climb 76% higher in the coming year.
For the rest of the street, 2 purchases and 4 detentions have been assigned in the last three months. Hence, UNFI is a moderate buy. At $ 23.50, the average price target implies 59% upside potential. (See UNFI Stock Analysis)
Tempur Sealy ( TPX )
Last but not least, we have Tempur Sealy (NYSE :), one of the world's largest suppliers of bedding, offering mattresses, adjustable bases, pillows and other sleep and relaxation products. After the solid earnings release in the third quarter, Wall Street is pounding the table on this Perfect 10.
In the quarter, total sales increased 37.9% year-over-year to $ 1,132 million, higher than the consensus estimate of $ 1,071 million. 5-star analyst Bobby Griffin, of Raymond James, notes that based on his estimates, N.A. grew by approximately 15%, excluding new distribution. Therefore, he believes that during the quarter, Tempur Sealy market share has won. In addition, adjusted EBITDA was $ 279 million, compared to The Street's $ 234 million call.
"The strong performance underscores the strength of the Tempur Sealy brand portfolio, its growing omnichannel distribution model and the benefit the entire category is benefiting from a strong US housing environment," noted Griffin.
While some investors have expressed concern about increasing demand, Griffin argues that the organic sales comparison in 2021 is reasonable on an annual basis. He stated about this: “Yes, the elections clearly create uncertainty in the short term. Nonetheless, in the long run, there are a handful of positive fundamentals (direct distribution expansion, struggling competitors, further international expansion, etc.) that are well-positioned Tempur Sealy to outperform. "
In addition to the good news, TPX initiated a quarterly cash dividend from 2021, with the goal of an annual payout of 15% of net income. The board of directors also increased the share buyback authorization to $ 300 million and announced a four-to-one stock split that will take place in November.
"All-in, the updated capital allocation, combined with Tempur Sealy's lower leverage profile going forward, should be well received by investors and open TPX to new potential shareholders," said Griffin.
In line with his optimistic approach, Griffin reiterated a Strong Buy rating and a price target of $ 115, indicating a 26% upside potential.
Do other analysts agree? Most are. In the past three months, 7 purchases and 1 have been blocked. So the message is clear: TPX is a strong buy. Given the average price target of $ 116.88, stocks could rise 28% next year. (See TPX Stock Analysis)
For more ideas for stocks that trade at attractive valuations, visit Investing Insights.
