We are halfway through 2021 and into what may be considered the slowest time of the year. The added complications this year come from supply shortages in the face of escalating demand and supply chain imbalances, as well as growing inflation that is now expected to bring forward the interest rate hike that everyone is anticipating.
So it’s time to refresh the age-old debate about value versus growth stocks and how analysts are thinking about them in the current environment.
For the purposes of the discussion, I took a look at the buy-ranked stocks in the Zacks universe, which as many of us already know, consists of a proprietary methodology based on analyst estimate revision trends. Zacks also allots a Style Score to each stock that characterizes it based on Value, Growth or Momentum.
I found that of the 967 buy-ranked stocks, 393 (41%) have Growth Scores of A or B, meaning that they can be bought for their growth characteristics. Also, 389 (40%) have Value Scores of A or B, which means that they are recommended for their value characteristics. So there is no clear sentiment favoring either growth or value over the other and we need to refine our search to find what we’re looking for.
But first, it makes sense to consider stocks in industries that have something going for them because the positive factors driving the industry are obviously also driving the constituent stocks. These industries typically have a higher Zacks Rank. In fact, the top 50% of Zacks-ranked industries have historically outperformed the bottom 50% by a factor of more than 2 to 1.
So if you are a value investor, i.e., you would like to research stocks before buying, then hold on to the them for the long term, you have a lot of options. Sectors with the largest percentage of value plays are retail, transportation, tech, conglomerates and basic materials, in that order.
The Retail sector is particularly attractive for value plays, with 54% of buy-ranked stocks carrying Value Scores of A or B. So this is the one I’m focusing on today.
The retail sector is likely to be one of the greatest beneficiaries of a resurgent economy, because it is tied to consumer buying. And consumers have been saving (and growing) a record amount of money over the past year. Not only that – going by the fact that the unemployment rate has gone from 13%+ last May to around 5% in May 2021, a lot of the people that lost their jobs during the pandemic are no longer unemployed. So consumers have buying power.
Second, there is a lot of pent-up demand for the things people had to forego in the interest of safety. People want to eat out, visit the salon, travel, go to the movies, meet people, and so on. This of course means increased spending on clothes, shoes, accessories, and so on.
Third, home furnishing remains an important consideration for those that haven’t made some changes already. A lot of people will continue to work from home. Some will move into new homes and start furnishing. With lumber prices letting off some heat, this industry is likely to see increased demand.
And finally, there’s auto retail. Although I’ve placed it last on the list, it’s really the most important piece. That’s because the auto market continues to see tremendous demand as rental car providers that reduced their fleets last year, are now scrambling to replenish before travel demand gathers momentum. Additionally, there’s also a shortage of trucks given the rebounding economy, so those are also in very high demand. Auto dealers, who are able to capitalize on the supply shortage, are raising prices and making handsome profits. The only concern is the supply constraint, because volumes really do need to pick up as well if growth is to continue. A longer-term positive trend is the electrification and automation of vehicles. With the government increasing focus on sustainability and the environment, this is likely to develop into a major driver over the next few years.
With that backdrop, let me dive straight into stocks-
AutoNation, Inc. (AN – Free Report)
AutoNation is the largest automotive retailer in the United States with over 315 new vehicle franchises and 230 stores. Other than new and used vehicles, the company offers vehicle maintenance and repair services, vehicle parts, extended service contracts, vehicle protection products, and other aftermarket products. In addition, it arranges financing for vehicle purchases through third-party sources.
The Zacks Rank #1 (Strong Buy) stock has Value, Growth and Momentum Scores of A, B and B respectively. It belongs to the Automotive – Retail and Whole Sales industry (top 4%).
Its revenue and earnings are expected to grow 16.1% and 42.6% in the current year, dropping off in the next. The 2021 Zacks Consensus Estimates for earnings is up 35.7% in the last 60 days. The estimate for 2022 is up 22.0%.
Asbury Automotive Group, Inc. (ABG – Free Report)
Asbury is one of the largest automotive retailers offering new and used vehicle sales and related financing and insurance, vehicle maintenance and repair services (including reconditioning of used vehicles), replacement parts and service contracts through franchised dealership locations and stand-alone stores. It sells used vehicles to retail customers and also other dealers through auctions.
The Zacks Rank #2 (Buy) stock has been allotted an A for Value, Growth and Momentum. Like AutoNation, it belongs to the Automotive – Retail and Whole Sales industry.
Revenue and earnings are currently estimated to increase a respective 27.7% and 35.6% this year, before declining in the next. However, estimates for both years are up substantially in the last 60 days: 18.5% in 2021 and 10.9% in 2022.
The Buckle, Inc. (BKE – Free Report)
The Buckle is a leading retailer of medium to better-priced casual apparel, footwear and accessories for fashion-conscious young men and women. Buckle markets a wide selection of brand names and private label casual apparel, including denims, other casual bottoms, tops, sportswear, outerwear, accessories and footwear. It offers personalized customer services like free alterations, layaways and a frequent shopper program.
The Zacks Rank #1 stock has a Value Score of B, Growth Score of A and Momentum Score of C. The Retail – Apparel and Shoes industry to which it belongs is at the top 17% of Zacks-classified industries.
The company’s revenue is expected to grow 22.9% this year (ending Jan) while earnings are expected to grow 41.0%. Both numbers are expected to decline in 2023.
L Brands, Inc. (LB – Free Report)
L Brands evolved from an apparel-based specialty retailer to a segment leader focused on women’s intimate and other apparel, personal care, beauty and home fragrance products. through specialty retail stores in the U.S., Canada, the UK, Ireland and Greater China (China and Hong Kong), which are primarily mall-based, and through its websites, catalogue and other channels
The Zacks Rank #2 company carries a Value Score of A, Growth Score of B and Momentum Score of C. It belongs to the Retail – Apparel and Shoes industry, which is in the top 17% of 250+ Zacks-classified industries.
The company’s revenue is expected to grow 21.6% this year and its earnings are expected to grow 67.3%. Growth rates are going to moderate after that. In the last 60 days, its estimated earnings for 2022 (ending January) have increased 25.9% while the 2023 earnings estimate increased 5.7%.
Genesco Inc. (GCO – Free Report)
Genesco, a Nashville-based specialty retailer, sells footwear, headwear and accessories in retail stores in the United States and Canada and online. The Company sells its products principally under the brand names Journeys, Journeys Kidz, Shi by Journeys, Johnston & Murphy, Underground Station, Hatworld, Lids, Hat Shack, Hat Zone, Head Quarters and Cap Connection. Its sells footwear at wholesale under the Johnston & Murphy brand and the licensed Dockers brand.
The Zacks Rank #1 stock has Value, Growth and Momentum Scores of B, B and A, respectively. It’s another member of the Retail – Apparel and Shoes industry.
For the year ending in Jan 2022, the company is expected to grow revenue 26.9% and earnings by 467.0%. Growth is expected to moderate but remain decent in the following year. The last 60 days have seen its current year earnings estimate move up 17.0% while the estimate for the following year moved up 7.2%.
Haverty Furniture Companies, Inc. (HVT – Free Report)
Haverty is a full-service home furnishings retailer in the Southern and Midwestern regions with a wide selection of quality merchandise in middle to upper-middle price ranges.
The Zacks Rank #1 stocks has a Value Score of A with both Growth and Momentum at B. It belongs to the Retail – Home Furnishings industry (top 8%).
It is expected to grow revenue and earnings by a respective 25.1% and 113.8% in 2021, after which the growth rate will moderate in 2022. The Zacks Consensus Estimate for the current year is up 89.6% in the last 60 days (there’s just one analyst providing estimates that have proved highly conservative in recent quarters). The estimate for the following year is up 92.0%.
Ethan Allen Interiors Inc. (ETH – Free Report)
Ethan Allen Interiors Inc. is a leading interior design company and manufacturer and retailer of quality home furnishings. The Company offers free interior design service to its clients and sells a full range of furniture products and decorative accessories through ethanallen.com and a network of the Design Centers in the United States and abroad. Ethan Allen owns and operates eight manufacturing facilities including six manufacturing facilities in the United States plus a plant in Mexico and one in Honduras.
The Zacks Rank #2 stock, a member of the Retail – Home Furnishings industry, gets an A for Value and Growth, and a C for Momentum.
Revenue for the current year (ending June) is expected to grow 16.0% while earnings is expected to grow 336.5%. Understandably, growth rates will moderate the following year, but current estimates indicate that they will remain decent. The Zacks Consensus Estimate for earnings is up 7.0% in the last 60 days. The estimate for 2022 is up 10.7%.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
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