The market got plenty of good news from earnings reports this week, sending stocks from
General Electric
to
Comcast
and
Royal Caribbean
higher. Yet not every company enjoyed a boost from delivering strong results.
The good news is that investors can scoop up some attractive names following selloffs. Here are four stocks that were punished this week, but deserve a second look.
Crocs
Longtime Barron’s readers will remember we recommended
Crocs
stock (ticker: CROX) in 2020, when it was trading below $42. The stock had never regained the record high of $67 it reached just before the 2008-2009 financial crisis. Many critics, both in finance and fashion, felt it would always be a one-hit wonder.
They have been proven incorrect. Crocs couture can be spotted on the red carpet and the stock is up 150% since that article’s publication. It has risen nearly 60% over the past year.
However, the stock has fallen some 13% this week to $108 after management noted that revenue at the high-growth HeyDude brand, acquired in 2022, wouldn’t increase as fast as expected for the full year.
That looks like an overreaction in light of the fact that Crocs still reported a healthy second quarter: Better-than-expected top- and bottom-line growth led management to raise its forecast for full-year earnings per share well above consensus estimates. The shares now trade for just eight times forward earnings, less than half its five-year average of 17 times.
As Baird analyst Jonathan Komp noted, the “ire over HeyDude [is] yielding an attractive entry opportunity” for a stock he thinks should rally to $185.
W.W. Grainger
Stock in
W.W. Grainger
(GWW), which sells a vast selection of the tools and parts that keep industry functioning, has been on a tear. It has climbed some 32% since the start of 2023, easily outpacing the
S&P 500
and its peers tracked by the
Industrial Select Sector SPDR
exchange-trade fund (XLI). Fans of the stock think it can benefit from what they believe is the early innings of a turnaround for industrials, fueled by cooling inflation and strong federal spending.
The stock is down nearly 6% this week to $726 despite better-than-expected earnings per share and a higher forecast of full-year profits. Investors have been troubled by the outlook for gross margins and the fact that revenue missed expectations for the second quarter.
The stock remains unpopular on Wall Street. Fewer than a quarter of the 17 analysts tracked by
FactSet
are bullish on the shares.
Yet the selloff provides the lowest entry point in a month for the shares. The stock has trended steadily higher over the past year and proven a successful contrarian bet.
Microsoft
The story is far different for
Microsoft
(MSFT), a wildly popular stock for good reason. The company has been a major contributor to the market’s 2023 rally and is at the heart of enthusiasm about the transformational power of artificial intelligence.
Nonetheless, Microsoft shares are off nearly 2% this week at about $338. Robust results for its fiscal fourth quarter were overshadowed by management’s financial forecasts.
Still the shares, up about 40% this year, look less overheated than those of some other Big Tech companies, which have doubled or tripled: The company’s valuation, at less than 30 times the per-share earnings expected for the coming year, isn’t far above its five-year average. It looks reasonable given the earnings growth its AI strategy could deliver.
Wedbush analyst Daniel Ives raised his target for the stock price to $400 following the report, arguing that the near-term guidance overlooks the fact that AI profitability is likely to take off in fiscal 2025. “We believe Microsoft is in the early innings of a massive penetration of AI and cloud that could conservatively approach 50% of its global installed base over the next three years,” he wrote.
O’Reilly Automotive
Auto-parts retailers have surged since the start of the pandemic because the scarcity and high prices of both new and used cars led many Americans to fix, rather than replace, their vehicles.
O’Reilly Automotive
(ORLY) was a laggard in the group when Barron’s recommended the stock in April 2021, but has since raced ahead.
It has soared 80% since that article’s publication, outpacing
AutoZone’s
(AZO) 65% gain. Advance Auto Parts (AAP) blew up earlier this year as it cut its dividend and its outlook.
This year, however, the auto parts retailers in general have lagged behind the broader market; O’Reilly is up 11% since the start of 2023, while the S&P 500’s gain is nearly double that. O’Reilly stock is off just over 2% this week to $929.
The company’s second-quarter results were good, but perhaps not strong enough given high expectations for this best-in-class retailer. The company continues to invest meaningfully in its business—a smart long-term strategy, but one that keeps more money flowing out than some investors may have hoped.
Still, there was a lot to like in O’Reilly’s latest results. O’Reilly’s sales didn’t weaken in June, unlike those of many other retailers, showing it continues to buck more lackluster industry trends. Gross margins continue to expand and the company appears to keep gaining market share.
Write to Teresa Rivas at [email protected]
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