Sejuti Banerjea


The pandemic has been an unexpected boon to the homebuilding industry, with people scrambling to find places that they consider better suited for social distancing and operating from home.

But that’s just one of the drivers. Equally strong, also related to the pandemic, is the fact that more and more companies are looking at working from home as a permanent mode of operation. This could be the first step toward decongestion of thickly populated areas, where home prices are so high that many people have to make do with rented accommodation.

Also, with home operation a new normal now, millennials looking to settle down but priced out of the locations where they work in, can finally take the plunge. They can finally buy a home where they can afford it since they don’t have to suffer the commute.

The low interest rates also make homes more affordable, thus pushing demand.

As a result, this is, today, a sellers’ market.

The typical new U.S. home sold in 16 days in September, down from 17 days in August and 28 days a year ago. Entry-level and mid-market homes sold the fastest, at 14 days and 16 days, respectively. Even the most expensive homes sold in 33 days, down from 47 days last September. [Zillow]

However, homebuilders have their share of challenges with land and labor shortage, rising lumber prices and pandemic-related delays in project completion. Wildfires and hurricanes in September are also doing their bit. So homebuilders are selling more homes than they can build, thus depleting inventories. For-sale inventory of new homes nationwide fell 1.2% in the week ended on Oct 10 (this is down 36.4% from the comparable week last year).

The situation is similar on the side of existing home sales as well, which is how most buyers typically buy their homes. The National Association of Realtors (NAR) estimates that existing home sales rose 2.4% in September, the highest rate since Dec 2006.

However, the number of homes for sale is half of what was available back then. Since existing homes sold at the fast rate ever (22 days) in August, inventories were pushed down 18.6% year over year, going into September (more NAR September data is due on Oct 22).

The declining inventories across existing and new homes have sent prices up. New home prices were up 2.2% from June to September, the largest quarterly increase since October 2013, and up 5.8% year-over-year. Existing home prices jumped 11.4% in August.

As a result, the big question before us today is the hit to affordability and how much more the market can bear.

The Zillow Market Pulse from Oct 19 says that mortgage applications dipped 5% in September. But this may not be too big a deal considering that August was such a strong month (and the likely peak this year). Moreover, mortgage applications are up 38% from Sep 2019.

The Market Pulse also quotes the National Association of Home Builders’ (NAHB) Housing Market Index (an indicator of homebuilder confidence), which rose two points in October to a record 85. That’s up 52 points from April.

Given the continued strength in the market well into the fall and the new selling season coming up in the spring of 2021, the industry should remain attractive for a while now. It’s therefore a good idea to keep buying homebuilding stocks.

The Zacks-classified Building Products – Home Builders industry has a Zacks industry rank of #6, which is in the top 2% of Zacks-classified industries. The industry has appreciated 37.9% year to date compared to 9.1% for the S&P 500.

M.D.C. Holdings, Inc. (MDC – Free Report)

Zacks Rank #1 (Strong Buy).

Value Score B

Growth Score A

The Zacks Consensus Estimate for 2020 increased 5 cents 7 days ago.

Meritage Homes Corp. (MTH – Free Report)

Zacks Rank #1

Value Score B

Growth Score A

The Zacks Consensus Estimate for 2020 increased 18 cents 7 days ago.

PulteGroup, Inc. (PHM – Free Report)

Zacks Rank #1

Value Score B

Growth Score B

The Zacks Consensus Estimate for 2020 increased 3 cents 7 days ago.

TRI Pointe Group, Inc. (TPH – Free Report)

Zacks Rank #1 (Strong Buy).

Value Score B

Growth Score A

The Zacks Consensus Estimate for 2020 is unchanged in the last 7 days.

Taylor Morrison Home Corp. (TMHC – Free Report)

Zacks Rank #1

Value Score B

Growth Score B

The Zacks Consensus for 2020 remains unchanged but for 2021, it is up 28 cents in the last 7 days.

D.R. Horton, Inc. (DHI – Free Report)

Zacks Rank #2

Value Score B

Growth Score A

The Zacks Consensus for 2020 is up a penny but for 2021, it is up 9 cents in the last 7 days.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

Author: Sejuti Banerjea

Source: Zacks: 6 Great Home Building Stocks to Maximize Your Gains

Restaurant stocks have been battered by the pandemic, as work from home and shelter in place orders compounded by safety concerns took a toll on them. Those particularly hard-hit were the really small outfits that didn’t have a system of online ordering and other digital presence, those that didn’t have a differentiated product line or sufficient loyalty programs, those that were prone to supply chain disruptions or were deficient in delivery channels and kiosks/carryout. These are the main factors driving restaurant stocks right now.

Customer preferences in post-crisis China may be indicative of how things are going to be in the U.S. as well. Accordingly, a McKinsey report from April says that sentiment surveys put in-restaurant dining in the least preferred category (as may be expected), down 41% as a result of the pandemic with only a 25% recovery thereafter. Takeout follows with a 29% decline followed by a quick 28% recovery thereafter.

Food delivery is a definite winner, dropping 20% only to come out 32% stronger. Grocery stores gain from the whole thing with ready-made foods dropping 12% initially to come back 27% stronger and other items dropping 3% initially only to grow 33% thereafter.

According to a June 2020 story in qsrmagazine, contactless carryout is a growing trend in the U.S. Two factors are driving this phenomenon in the pandemic/post-pandemic world: the first being the inability to see how the food was prepared and packaged when it’s delivered to your doorstep and the second being the growing awareness of just how much aggregators charge for the service. With most people paying more attention to finances during the pandemic, people don’t want to pay more.

The story quotes a Dragontail report, according to which, 70% of customers had more food delivered during the pandemic, but 70% of the group using aggregator apps more said that they’d prefer a contactless carryout option. The bottom line seems to be that both these options are likely to stick long after the pandemic is gone.

On the supply side, one factor that impacted restaurants was the availability of meat because meat producers like Tyson (TSN – Free Report) were badly hit by the virus, leading to shutdowns. So restaurants like Wendy’s (WEN – Free Report) , which use fresh rather than frozen meat, were impacted more than others.

The USDA National Agricultural Statistics estimates that there was a 20% reduction in beef production in April 2020 from April 2019, a 10% reduction in pork production, a 9% reduction in turkey production, with chicken meat production remaining about unchanged. This of course also impacted prices, with whole fresh chickens appreciating the most, followed by pork chops, chicken boneless breasts, round steak, ground beef and chicken legs in that order. The USDA says that the disruption was temporary and prices of eggs, as well as many cuts of beef and pork are stabilizing.

But this likely prompted restaurant chains to add/promote their chicken dishes.

The Retail-restaurants industry is ranked 60 by Zacks out of a 250+ total, which places it in the top 24% of Zacks ranked-industries. Historically, it has been proved that the top half beats the bottom half by a factor of more than 2 to 1.

The companies I’m talking about here have digital presence, strong delivery channels, minimal supply chain disruption and product innovation/pricing strategies.

El Pollo Loco Holdings, Inc. (LOCO – Free Report)

Costa Mesa, CA-based El Pollo Loco, owns, operates and franchises quick-service restaurants under the El Pollo Loco name. The restaurants specialize in flame-grilled chicken in a variety of contemporary Mexican-influenced entrees, including specialty chicken burritos, chicken quesadillas, chicken tortilla soup, Pollo Bowls and Pollo Salads.

The company had several advantages going into the crisis, with approximately 45% of business historically conducted through drive-in windows, 30% through takeout and 3% through delivery partners GrubHub, DoorDash and Uber Eats. So the in-restaurant dining segment was around 22%. When the pandemic forced more people to work and eat at home, drive-in windows jumped to 70% and delivery jumped to 9% of sales. So nothing was really lost.

Ecommerce sales are soaring and its loyalty program is also doing well.

Since orders are now coming from home, they are typically larger in size to accommodate all family members. So in addition to regular family meals, it introduced a weekend pack for loyal customers that generated significant incremental sales.

It also threw in $5 fire-grilled combos to tap value-seeking customers.

And of course, it’s taking all safety measures like gloves, masks, extra cleaning, a plexiglass shield for the cashier station and getting infrared thermometers to check employees’ temperatures before entry.

Since that checks all the boxes as far as beating pandemic conditions is concerned, it isn’t surprising that LOCO shares carry a Zacks Rank #1 (Strong Buy).

Note that its revenue and earnings are still expected to decline versus 2019 before growing again next year (year ends in December). But since the 2020 EPS estimate dropped from 46 to 11 cents and then went back up to 43 cents in the last 90 days, it does appear that the company has managed to adjust to the new normal.

It also has a good track record, having topped estimates in each of the last four quarters at an average rate of 21.5%, so there likely isn’t any risk to these expectations.

Based on forward 12 months’ earnings, the shares are trading above their median value but nowhere near their 52-week high achieved in the beginning of May. The S&P 500 is however trading at its 52-week high. So this is a good pick for people looking for exposure to the segment.

Jack In The Box Inc. (JACK – Free Report)

Based in San Diego, Jack in the Box is one of the nation’s largest hamburger chains, operating and franchising Jack in the Box quick-service restaurants. Its first store opened in 1951.

The restaurant chain generates just 15% of its revenue through dine-in, 70% typically comes from drive-through and 15% takeout. So it was reasonably well positioned for the pandemic. Management said that over 95% of restaurants were covered by at least one of the four major delivery companies and 8% were covered by at least three. Just like LOCO, it quickly adjusted to doing all sales through the mobile app, drive-through, takeout and delivery systems.

On the product innovation side, it started a Spicy Popcorn Chicken, which along with the recently-introduced Tiny Tacos made up the kind of highly portable items that people could quickly order. These products didn’t disappoint. The usual custom of supplying breakfast items all through the day also paid dividends. The focus on indulgent foods also paid off.

Jack also saw check sizes increase as they catered to multiple people. The company also sold value bundles.

Safety measures for customers and employees were also undertaken.

The shares carry a Zacks Rank #1.

Analysts still see its revenue increasing in the year ending Sep 2020 although earnings will take a hit. Both revenue and earnings are expected to grow thereafter. The 2020 EPS estimate dropped from $3.26 to $2.85 and then went up to $3.52 in the last 90 days, so Jack too seems to have adjusted to the new normal.

While its surprise history is spotty with the company posting an average miss of 8.3% in the last four quarters, its business model positions it better than others to deal with the peculiarities of the pandemic. So it will likely generate more stable income.

Note that it temporarily paused the quarterly dividend.

Based on forward 12 months’ earnings, the shares are trading below their median value over the past year. So they are worth buying at this point.

Domino’s Pizza Inc (DPZ – Free Report)

The company mainly benefits from its delivery and carryout business model. Contactless carryout technology has now been expanded across all U.S. stores and was the main driver of sales in the last quarter.

While only 20 U.S. stores had to be closed, a significantly larger number of stores were closed internationally, due to government mandates.

There are also no issues on the supply chain side, which has helped operation.

Unlike most other restauranteurs, Domino’s, its supply chain centers, corporate stores and franchisees plan to add 10,000+ employees across the U.S.

The company has adjusted its standard operating procedures in the last six weeks in keeping with the new normal.

The shares carry a Zacks Rank #2 (buy).

Both revenue and earnings are expected to grow this year, although growth rates are expected to slow down in 2021. The 2020 EPS has gone from $10.29 to $11.32 in the last 90 days. Its four-quarter average earnings surprise is 12.7%, so there seems to be little risk to the expectations.

Based on forward 12 months’ earnings, the shares are trading above their median value but well below near their 52-week high, making it a good pick in this market.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

Author: Sejuti Banerjea

Source: Zacks: These Restaurant Stocks Are Too Good To Pass Up

When I say post-pandemic, I don’t exactly mean “post” because there doesn’t seem to be a timeline for when this will end. What I do mean is a time when we’re more accustomed to the changes to our way of life that the pandemic has enforced.

Because it’s hard to find a vaccine or “cure” for viruses, and even the flu shot doesn’t guarantee you won’t die from it. Nor did we find a vaccine for the earlier version of the SARS virus that’s causing COVID. The virus basically travels until a significant percentage of the population is infected. That’s when the probability of the uninfected to get infected drops (herd immunity). In the meantime, and if we’re lucky, it may undergo a mutation that’s less deadly, in which case, the whole scare dies down. Curiously, this is what the virus wants as well, to go on feeding on the host instead of killing it. Eww.

But a host of companies are working on a vaccine, so we may just get it next year, or the year after that.

Obviously, we can’t just stop living in the interim, nor can we stop investing. So the wisest thing to do would be to adjust to the “new normal”. And that itself will tell us what we should be investing in.

If there’s any doubt in anyone’s mind about the number one trend determining the future from this point on, let me tell you, it’s called “work from home.” And why do I call this a megatrend? It’s because the place where the consumer is, decides the place where commercial activity happens.

So if more people are going to the office, they will need to travel, they will need a certain kind of IT support at the office, they will eat out more, they will need a certain kind of dress and so forth. If on the other hand they are working from home, they won’t need to travel as much, they will need a different kind of IT support, different home furnishings, different kind of dress and they’ll need more groceries. They’ll also want a break from cooking, so they’ll love to have food delivered home. With travel time cut down and generally greater flexibility, they’ll probably watch more TV and other entertainment, and play more games.

The CDC has provided guidelines and most people are currently aware that they must wash their hands as often as possible. Not only that, we also know that we’d better clean and sanitize our surroundings as much as we do ourselves. Because the virus survives on different surfaces for different lengths of time until it can attach itself to human protein. So most of us are cleaning more than we’ve ever done before and insisting that the folks that serve us do the same. This change in our cleaning regimens is trend number two.

The third trend, supporting the second one, is reducing physical contact with other persons and things. Increasing contact means more cleaning, so it just feels more peaceful to reduce. This means more personal time, which may be used to exercise, read books, watch TV, play games, go online, do gardening, cook, and so forth. It could be anything that can be done at home or alone, for when you’ve had your dose of family.

It also means that we try to buy everything we need online and reduce contact with the delivery person. And when we do visit the store as we sometimes must, we don’t want physical contact with sales staff or the cashier. It also means that we prefer handling official communication through email and video conferencing to personal interaction and prefer calling the doctor rather than visiting the clinic to reduce risk of infection.

The fourth trend is cook-at-home. More time spent at home and fear of the virus spreading through delivery people are the main reasons. It means a greater reliance on groceries than on restaurants.

The final trend is a result of the unfortunate fallout of the pandemic. Many people are out of jobs, many fear they will lose their jobs and many small shops have virtually no business left. They are surviving on government support. This means rising demand for cheap/discounted goods.

5 stocks that look good based on the above trends-

Chegg, Inc. (CHGG – Free Report)

Chegg provides a social education platform offering printed textbooks on rent or sale as well as eTextbooks, supplemental materials, homework help, textbook buyback, courses, and college admissions and scholarship services. It also offers enrollment marketing and brand advertising services.

Zacks Rank #1

Industry: Internet – Software Top 18% (46 out of 253)

eBay Inc. (EBAY – Free Report)

eBay operates as an online shopping site that allows visitors to browse through available products listed for sale or auction through each company’s online storefront. Over the years, the company has evolved from a relatively small community user-based auction site to a worldwide commercial behemoth store.

Zacks Rank #1

Industry: Internet – Commerce Top 30% (76 out of 253)

The Procter & Gamble Company (PG – Free Report)

The Procter & Gamble Company, also referred to as Procter & Gamble or P&G, is a branded consumer products company which markets its products in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, distributors, baby stores, specialty beauty stores, e-commerce, high frequency stores and pharmacies. It has operations in approximately 70 countries.

Zacks Rank #2

Industry: Soap and Cleaning Materials Top 14% (35 out of 253)

The Kroger Co. (KR – Free Report)

Kroger, which operates supermarkets, multi-department stores, marketplace stores and price impact warehouse stores offers low-margin groceries. As of March 25, the company operated 2,757 retail food stores under various banner names in 35 states and the District of Columbia, as well as an online retail store. The company has been turning itself around by digitizing certain operations and is in a strategic partnership with British grocery delivery firm Ocado to construct three new customer fulfillment centers in the Great Lakes, Pacific Northwest, and West regions.

Zacks Rank #1

Industry: Retail – Supermarkets Top 43% (108 out of 253)

Dollar General Corporation (DG – Free Report)

Dollar General Corporation is one of the largest discount retailers in the United States. As of February 28, it operated 16,368 stores in 45 states in the United States. The company offers a broad selection of merchandise, including consumable items, seasonal items, home products and apparel from leading brands and its own private selections at substantial discounts. The items typically sell at $10 or less.

Zacks Rank #1

Industry: Retail – Discount Stores Top 9% (23 out of 253)

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Author: Sejuti Banerjea

Source: Zacks: 5 Trends That Will Drive the Post-Pandemic World

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