Tuesday, December 6, 2022

1 Stock To Buy, 1 To Dump When Markets Open: Best Buy, Avis


Stocks on the ,  and  ended lower on Friday, as investors weighed the worrying increase of new against apparent progress on vaccines. The small-cap was the one outlier, closing the day in green.

More than 12 million coronavirus cases have been reported in the U.S. since the pandemic began nine months ago. The nation has not only set records for daily infections, but also for the number of COVID-related fatalities.  

Wall Street will have a shortened trading week with the stock market shutting down on Thursday, Nov. 26 for Thanksgiving and closing early at 1:00 PM ET on Friday.

There will, however, be a full slate of earnings reports and data releases coming out in the days prior, providing investors an opportunity to monitor additional developments in the lingering health crisis.

Below we’re highlighting one stock likely to see losses in the days ahead and one which has proven it can push higher even in this unclear market environment:

Stock To Buy: Best Buy

Best Buy (NYSE:) has been one of the premier performers in the retail sector this year, with the consumer tech giant benefitting from rapid growth in e-commerce and online sales during the coronavirus pandemic.

Year-to-date, shares of the Richfield, Minnesota-based company have gained 36%, outpacing the benchmark S&P 500’s 10% rise since the start of the year, as it continues to be one of the few electronics retailers thriving even with growing competition from Amazon.com (NASDAQ:).

The stock ended at $119.14 on Friday, rallying back towards its all-time high of $124.82 reached on Nov. 5, giving the largest U.S. consumer electronics retailer a market cap of $30.8 billion.

Best Buy Daily Chart

Best Buy, which reported an on earnings and revenue in the second quarter, is projected to report third quarter results on Tuesday, Nov. 24 before the U.S. market opens.

Consensus estimates call for the tech gadget retailer to post earnings of $1.70 per share, jumping 50% from EPS of $1.13 in the same quarter a year earlier.

Revenue is forecast to rise 12% year-over-year to nearly $11 billion, as consumers flocked to its digital app to order computers, tablets and other work-from-home equipment amid the ongoing nation-wide health crisis.

Investors will therefore pay close attention to growth in Best Buy’s domestic online sales, which soared by a whopping 242% in the previous quarter even as most of its stores reopened from earlier lockdowns.

Despite lofty expectations, we anticipate Best Buy will post another , driven by the ongoing spike in e-commerce spending due to the coronavirus outbreak.

One key earnings update to watch: comments on the overall economy and health of the U.S. consumer from executives on Best Buy’s post-earnings conference call. This could signal what the company forecasts as virus cases surge ahead of the holidays.

Stock To Dump: Avis Budget Group

Investors may want to stay away from Avis Budget Group (NASDAQ:) this week after a number of states and cities across the U.S. have reimposed social distancing restrictions in an effort to slow the rapid spread of the virus ahead of the winter season.

U.S. public health professionals are also urging the public to forgo holiday gatherings. With Thanksgiving just a few days away, the demand for rental cars is likely to remain depressed.

Year-to-date, shares of the Parsippany, New Jersey-based car rental company have underperformed the S&P 500 for the year, with Avis climbing under 8%, while the S&P rose 10 over the same period.  

The stock closed at $34.79 on Friday, giving it a market cap of roughly $2.4 billion.

Avis consensus estimates for earnings and revenue when it released third quarter financial results on Oct. 29, even as profit and sales recorded sharp year-over-year declines.

The rental car company reported adjusted earnings per share of $1.13, down roughly 62% from EPS of $2.96 in the year-ago period. Revenue tumbled 44% from the same quarter a year earlier to $1.53 billion, above the $1.44 billion consensus estimate.

However, the earnings beat failed to impress investors as management warned that it expects the travel environment to remain challenging given the implications of the pandemic.

Considering the struggles of the underlining the car rental services, revenue from its Americas segment—which contributes almost 73% to total revenues—shrank 40% year-over-year to $1.114 billion.

Taking this into account, CAR shares look set to remain under additional pressure in the days ahead as investors brace for a difficult holiday travel season.

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