Storm-Proof Your Portfolio: 3 Stocks for Hurricane Season

Posted on by The INO.com Team

During the late summer, when tropical waters are warmest, thunderstorms cluster to suck up the warm, moist air and move it high into the earth’s atmosphere. As a result, tropical circular winds spin around the eye, which is a low-pressure center 20 to 30 miles in radius characterized by eerie calm.
When the tropical storm’s winds reach 74 miles per hour, these self-sustaining heat engines are called typhoons in the Pacific, cyclones in the Indian Ocean, and hurricanes in the Atlantic.

With June 1 marking the beginning of the hurricane season, these tropical storms are set to ravage the eastern seaboard. In addition to gusty winds that can wreak havoc, storm surges caused by water being pushed to the shoreline by those winds can rise 20 feet above sea level and extend for 100 miles to cause widespread loss of life and property.
Moreover, with the ever-intensifying threat of global warming that’s causing sea levels to rise and the imminent spikes in global temperatures and extreme weather conditions due to the arrival of El Niño, it would be unsurprising to find hurricanes increasing in severity and climbing up the Saffir-Simpson Scale.

While hurricanes, like all natural phenomena, serve a higher purpose by circulating heat from the earth to the poles to regulate global temperatures, they have far-reaching negative implications for the broader economy and the investment world. However, there are businesses out there that thrive amid adversity by helping their customers tide over it.

Repair and restoration of homes in the aftermath of hurricanes could lead to a resurgence in the prospects of home improvement and heavy machinery businesses by deeming most of their offerings non-discretionary and indispensable.

Here are three stocks that could be propelled by hurricanes at their sails.

The Home Depot, Inc. (HD)

The home improvement retailer serves two primary customer groups: do-it-yourself (DIY) Customers and Professional Customers (Pros). Its offerings include building materials, home improvement products, lawn and garden products, repair and operations products, and associated services.
Due to weak demand for big-ticket items and falling lumber prices, as consumers have delayed large projects amid rising mortgage rates and increased expenditure on services, HD missed its revenue expectations during the fiscal first quarter.

However, with the onset of the hurricane season and the tailwind of the switch from gas-powered to battery-powered outdoor tools, fueled by California’s ban on the sale of gas-powered equipment starting in 2024, and the passing of noise ordinances by an increasing number of cities and homeowners’ associations, HD has reaffirmed its fiscal 2023 guidance and established its market stability outlook.

Lowe's Companies, Inc (LOW))

With new home purchases softening amid rising mortgage rates, home improvement projects will keep homeowners of an aging U.S. housing stock busier than usual this summer. Hence, the home improvement retailer is best positioned to make a tailwind out of this turbulence, with more than two-thirds of sales contributed by non-discretionary purchases, such as new appliances to replace broken ones.

As a result, LOW has surpassed its revenue and expectations for the first quarter of the fiscal year. Moreover, as with its peer mentioned above, the ongoing upgrade cycle driving sales of battery-powered outdoor tools has the potential to keep the momentum going.

Caterpillar Inc. (CAT)

The heavy-machinery manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives operates through its three primary segments: Construction Industries, Resource Industries, and Energy & Transportation.

While a boost in U.S. infrastructure spending kept order books full and helped CAT beat Street expectations with a 31% rise in first-quarter profit, increased restoration, relief, and rescue activity during the hurricane season could lead to a surge in demand for its construction industries segment which is engaged in supporting customers using machinery in infrastructure, forestry, and building construction.

Analyzing Walgreens Boots Alliance (WBA) Amid Massive Store Closures

Posted on by The INO.com Team

The fading of the Covid 19 pandemic couldn’t have come sooner for the vast majority of the economy, which is currently reaping the bounty of pent-up demand for the vast array of outdoor experiences that have been restricted for the greater part of the last three years.

However, one of the businesses that can be excused for not being as thrilled is Walgreens Boots Alliance, Inc. (WBA). In October 2022, the company announced a slew of store closures across states, such as New York, Kentucky, Florida, Massachusetts, and Colorado. More recently, WBA announced that it expects to close 150 of its almost 900 locations in the United States and 300 locations in the United Kingdom.

The second-largest pharmacy store in the U.S., which has been around since 1901, missed its earnings estimate for the first time in three years. Moreover, at $118 million, or $0.14 a share, its third-quarter earnings were actually lower compared to $289 million, or $0.33 a share, a year ago.

In addition to muted consumer spending due to a not-so-transitory inflation and borrowing costs which could climb higher by the end of this year, much of this slowdown could be attributed to a pullback in demand for Covid vaccines. Sales of covid vaccines during the quarter plummeted 83% to 800,000, down from 4.7 million in the same period last year.

Given the fading tailwind of covid vaccine demand, the Illinois-headquartered integrated healthcare, pharmacy, and retailing company slashed its full-year earnings guidance to a range of $4.00 to $4.05 per share, down from its previous forecast of $4.45 to $4.65 per share.

CEO Rosalind Brewer said the company is closely watching the end of fiscal stimulus and resumption of student loan payments as potential headwinds that could induce the cautious and value-driven consumer to cut back further on discretionary spending.

Consequently, WBA’s shares slumped 9% following the release. The stock is down 20.5% over the past six months, compared to a 13.3% gain for the S&P 500.

During its second-quarter earnings release, WBA announced its ongoing and long-term transition into a more health-care-oriented company that will involve opening hundreds of doctor’s offices, significant store remodels, and hiring more medical staff. To support the costly transition, the company is “taking immediate actions to optimize profitability” of its U.S. healthcare segment.

CFO James Kehoe told analysts the company will have saved $3.3 billion by the end of this year and is projecting to save “at least” $800 million in 2024. On May 26, WBA announced its decision to slash more than 500 roles or around 10% of its corporate and U.S. office support workforce.

The pharmacist has said that it’s driving further savings by leveraging technology and optimizing its business model to build the “pharmacy of the future” through its micro fulfillment centers, tech-enabled centralization of in-store activities, telepharmacy solutions, and launching initiatives, such as drone delivery.

However, the empowerment of each store to serve broader areas more remotely has come at the cost of a reduction in the total number of locations.

Bottomline

WBA is a company in transition, and transitions, if at all, are seldom linear and painless.

Hence, while the closure of 150 locations is significant, we should be careful not to be denominator-blind and over-react to WBA shedding less than 2% of its 900-strong domestic physical footprint in the interest of morphing from a pharmacist and retailer into a future-ready healthcare service provider.

Storm-Proof Your Portfolio: 3 Stocks for Hurricane Season

Posted on by The INO.com Team

During the late summer, when tropical waters are warmest, thunderstorms cluster to suck up the warm, moist air and move it high into the earth’s atmosphere. As a result, tropical circular winds spin around the eye, which is a low-pressure center 20 to 30 miles in radius characterized by eerie calm.

When the tropical storm’s winds reach 74 miles per hour, these self-sustaining heat engines are called typhoons in the Pacific, cyclones in the Indian Ocean, and hurricanes in the Atlantic.

With June 1 marking the beginning of the hurricane season, these tropical storms are set to ravage the eastern seaboard. In addition to gusty winds that can wreak havoc, storm surges caused by water being pushed to the shoreline by those winds can rise 20 feet above sea level and extend for 100 miles to cause widespread loss of life and property.

Moreover, with the ever-intensifying threat of global warming that’s causing sea levels to rise and the imminent spikes in global temperatures and extreme weather conditions due to the arrival of El Niño, it would be unsurprising to find hurricanes increasing in severity and climbing up the Saffir-Simpson Scale.

While hurricanes, like all natural phenomena, serve a higher purpose by circulating heat from the earth to the poles to regulate global temperatures, they have far-reaching negative implications for the broader economy and the investment world. However, there are businesses out there that thrive amid adversity by helping their customers tide over it.

Repair and restoration of homes in the aftermath of hurricanes could lead to a resurgence in the prospects of home improvement and heavy machinery businesses by deeming most of their offerings non-discretionary and indispensable.

Here are three stocks that could be propelled by hurricanes at their sails.

The Home Depot, Inc. (HD)

The home improvement retailer serves two primary customer groups: do-it-yourself (DIY) Customers and Professional Customers (Pros). Its offerings include building materials, home improvement products, lawn and garden products, repair and operations products, and associated services.

Due to weak demand for big-ticket items and falling lumber prices, as consumers have delayed large projects amid rising mortgage rates and increased expenditure on services, HD missed its revenue expectations during the fiscal first quarter.

However, with the onset of the hurricane season and the tailwind of the switch from gas-powered to battery-powered outdoor tools, fueled by California’s ban on the sale of gas-powered equipment starting in 2024, and the passing of noise ordinances by an increasing number of cities and homeowners’ associations, HD has reaffirmed its fiscal 2023 guidance and established its market stability outlook.

Lowe's Companies, Inc (LOW)

With new home purchases softening amid rising mortgage rates, home improvement projects will keep homeowners of an aging U.S. housing stock busier than usual this summer. Hence, the home improvement retailer is best positioned to make a tailwind out of this turbulence, with more than two-thirds of sales contributed by non-discretionary purchases, such as new appliances to replace broken ones.

As a result, LOW has surpassed its revenue and expectations for the first quarter of the fiscal year.
Moreover, as with its peer mentioned above, the ongoing upgrade cycle driving sales of battery-powered outdoor tools has the potential to keep the momentum going.

Caterpillar Inc. (CAT)

The heavy-machinery manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives operates through its three primary segments:

Construction Industries, Resource Industries, and Energy & Transportation.

While a boost in U.S. infrastructure spending kept order books full and helped CAT beat Street expectations with a 31% rise in first-quarter profit, increased restoration, relief, and rescue activity during the hurricane season could lead to a surge in demand for its construction industries segment which is engaged in supporting customers using machinery in infrastructure, forestry, and building construction.

Stocks Set to Pop Off Following 4th of July

Posted on by The INO.com Team

With the pandemic in the rearview mirror, Independence Day has taken on an entirely new significance for most Americans this time. Americans appear to have gone above and beyond to compensate for the years spent indoors by making the most of the (unofficially) long weekend with short trips, camping, cookouts, pool parties, and eating out.

The increased demand for, and consequently expenditure on, services and experiences is also evident in the recent employment data, with leisure and hospitality adding 208,000 positions out of the expectation-beating private sector employment increase of 278,000 for May. The sector was also a notable contributor to the increase of 339,000 in non-farm payrolls for the month.

In view of the above, leisure stocks could be the beneficiaries of the increased levels of outdoor activities around the nation’s Independence Day. In this context, the following stocks that could witness significant upsides in the near term could be worth watching.

The Walt Disney Company (DIS)

While the global entertainment giant has recently been in the news for its ongoing feud with Gov. Ron DeSantis, outside the political and legal arena, DIS is going through a significant transition under the leadership of its returned CEO, Robert A. Iger.
In addition to the Disney Entertainment and the ESPN divisions, the rest of DIS’ businesses will be organized under the existing parks, experiences, and products division.

As a result, DIS reported significant growth at its theme parks during the fiscal second quarter, which saw a 17% increase in revenue to $7.7 billion, with around $5.5 billion contributed by theme-park locations. Moreover, its cruise business also saw an increase in passenger cruise days as guests spent more time and money visiting its parks, hotels, and cruises domestically and internationally during the quarter.

Domino's Pizza, Inc. (DPZ)

The global pizza chain operates two distinct delivery and carryout service models within its stores. The company operates through three segments: U.S. stores; international franchises; and supply chain. In addition to company-owned and franchised stores across the United States, its network of franchised stores is spread in 90 international markets.

Given the increased outdoor activity, while delivery sales will stabilize, carryout sales are expected to grow in the next twelve months. In view of the widespread reversal of consumer behavior to pre-pandemic patterns, on June 20, DPZ launched its Pinpoint Delivery service nationwide that allows customers to receive a delivery almost anywhere, ranging from parks and baseball fields to beaches, without a standard address.

American Airlines Group Inc. (AAL)

Being one of the major air carriers, AAL is reaping the bounty of the surge in leisure travel during the first summer in three years in which the pandemic is not making headlines.

With enough pent-up demand from consumers ever keener to redeem their pile of airline miles and other travel rewards on their credit cards through revenge travel, it’s unsurprising that AAL has turned to bigger airplanes, even on shorter routes, to help ease airport congestion and find its way around pilot shortages.

As a result of this tailwind, AAL’s revenue surpassed the airline’s cost to help it report a $10 million profit during the first quarter of the fiscal year. Moreover, with fuel prices yet to rise significantly due to a stuttering recovery of the Chinese economy and Memorial Day travel topping 2019 levels, the operator has raised its adjusted earnings outlook for the second quarter.

Nathan's Famous, Inc.

NATH operates in the food service industry as an owner of franchise restaurants under Nathan’s Famous brand name. The company also sells products bearing Nathan’s Famous trademarks through various distribution channels.

Driven by post-pandemic momentum, for the fiscal year that ended March 26, 2023, NATH’s revenues increased 13.8% year-over-year to $130.79 million. During the same period, the company’s income from operations increased by 15.3% year-over-year to $34.45 million, while its adjusted EBITDA grew 16.8% year-over-year to come in at $36.38 million. As a result, net income for the fiscal came in at $19.62 million, up 44.3% year-over-year.

3 Auto Giants Caught in Recall Chaos: Stocks at Stake!

Posted on by The INO.com Team

Benjamin Franklin once said, “If you fail to plan, you plan to fail.” While the thought has stood the test of time, with time, businesses have also realized that planning for accidental (yet inevitable) failure is also a failure to plan.

The National Highway Traffic Safety Administration (NHTSA) recently issued multiple recalls, with three auto giants scrambling for cover and damage limitation.
Ford Motor Company (F) is recalling 979,797 of its vehicles for not having instructions on adjusting or removing certain head restraints in the owner's manual. These include certain 2018-2023 Expedition and Lincoln Navigator models that have third-row seating, 2019-2023 F-Super Duty F-250, F-350, F-450, F-550, and F-600 SuperCab vehicles along with three-passenger front bench seat regular cab models.

In addition, the company has also recalled 16,375 select 2022-2023 F-150 BEV vehicles for a rear lightbar issue in which the lightbar may have micro-cracks in its outer lens, allowing moisture to collect, which could result in out-of-order or flickering reverse lights.

Hyundai Motor Company (HYMTF) is recalling 322 of its 2023 Palisade vehicles for a potential issue in which the brake booster diaphragm may become misaligned and cause an internal vacuum leak in the vehicle, potentially leading to a loss of power brake assist.

Nissan Motor Co., Ltd. (NSANY) is recalling 230 2022 Sentra vehicles for a potential missing or improper seal in the driver's side cowl area. This can allow water to leak inside the vehicle and corrode electrical components, which could lead to the failure of electrical systems and increase the risk of a crash and an electrical short-circuit, potentially increasing the risk of a fire.

In all three cases mentioned above of oversight, corrective actions are being taken by the concerned companies through their dealer networks free of additional cost to the customer.

However, since resources that could have been utilized to meet planned business objectives need to be diverted to execute these unplanned corrections, let’s understand the ever-growing incidents of product recall and their impact on businesses and (by extension) their stock prices.

A product recall is a process of retrieving and replacing defective goods, with the concerned company or manufacturer assuming the responsibility and absorbing the cost of replacing and fixing defective products or reimbursing affected consumers, as per consumer protection laws.

With the spread of globalization, businesses expanded and diversified their supply chains globally through offshoring and outsourcing to remain cost competitive, although often at the cost of the reliability or quality of their end products or services.

Moreover, an offering, or a component of the same, must comply with the regulations of both the country of its origin and the market in which it is supposed to be distributed. Hence, even if a product passes regulations in China, it might not be under U.S. laws. It would, therefore, have to be recalled.

Government agencies, such as the NHTSA, are responsible for testing products and recognizing faulty ones before they reach the market. With the increasing complexity of global supply chains and the frequency of tests, product recalls have also increased in frequency.

Since brand equity is built on trust and confidence, recalls can tarnish a company's reputation, translating into financial losses and consequent erosion of market capitalization. Moreover, although insurance may cover a minimal amount to replace defective products, several recalls result in lawsuits that could further dent a company’s prospects.