These Stocks Could Get Big Post-Election Bumps Through the Holidays — Barrons.com

Participants in the Zacks Building Products – Retail industry are poised to benefit from technological initiatives to enhance the e-commerce experience. Companies are strengthening, expanding online offerings and enhancing omni-channel capabilities. Industry players are also gaining from strategic acquisitions, supply-chain growth and digital innovations. Experts believe that the U.S. Federal Reserve’s recent rate cut also positions the industry participants to benefit from lower interest rates, which should increase the demand for home improvement projects. Ongoing innovation, growth in e-commerce and a favorable interest rate environment are expected to support companies like The Home Depot Inc. HD, Lowe's Companies LOW, Fastenal Company FAST, Beacon Roofing Supply BECN and Tecnoglass TGLS.

However, the housing and home improvement industry faces a challenging environment, with broad pressures impacting company performance. These challenges are largely led by a decline in consumer demand, particularly in high-ticket, discretionary categories. Concerns also arise from inflation-related constraints, deflating lumber prices and rising costs in products and transportation.

About the Industry

The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufacturers of industrial and construction materials, and distributors of wallboard and ceiling systems. Some industry participants offer products and services for home decoration, repair and remodeling, and in-home delivery and installation services. A few industry players provide construction products, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, and lawn and garden decor products. Some players deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.

4 Trends Shaping the Future of Building Products - Retail Industry

Digitization & Acquisitions in Focus: Retail Building Products companies have experienced a surge in online transactions as consumers increasingly turn to digital platforms, fueling top-line growth across the industry. In response, companies are expanding their digital presence by broadening online product selections and enhancing omni-channel capabilities to meet growing demand. To ensure fast and secure service, many players are scaling up their delivery operations. The sustained increase in digital transactions is projected to continue driving revenue growth for the industry players. Acquisitions remain a core growth strategy, with some companies pursuing geographic expansion and organic revenue improvement opportunities.

Do-it-Yourself (DIY) & Pro Projects: Despite a slowdown in consumer spending, the demand for interior makeovers and repair-remodel projects continues to present opportunities for industry players. DIY projects for decorating and maintaining furniture and fixtures are increasingly popular. Furthermore, consumers are more willing to hire professionals (“Pros”) for home renovations, driving demand for Pro services. Companies report that Pro backlogs are strong and elevated, which is expected to benefit home improvement participants, particularly those focusing on expanding Pro offerings.

Housing & Home Improvement Industry Trends: The home improvement industry has been facing significant pressures due to softened customer demand in certain big-ticket, discretionary categories. The high interest rates since early 2024 have dampened demand for larger projects. Inflationary pressures, particularly on lumber prices, have impacted the financial performances of companies in the sector in recent quarters. Recent signs of weakness in the housing market, including sluggish home sales, high prices and elevated mortgage rates, are affecting the performances of industry players. However, the recent decision by the U.S. Federal Reserve to cut interest rates by 50 basis points could prove to be a significant boost for home improvement companies. Lower borrowing costs are expected to make mortgages and home improvement loans more affordable, which should drive demand for renovation services and home purchases. Analysts also anticipate a rise in housing demand, with expectations of reduced home loan rates.

Rising Costs: Inflationary pressures, particularly rising input costs, pose concerns for companies in the home improvement industry, as these could put pressure on profit margins. Falling lumber prices may affect the industry’s performance. Some companies have adopted a cautious outlook for 2024, anticipating lower consumer spending, more normalized transaction levels and ongoing investments to capture market share. The industry is expected to see a gradual normalization in transactions as consumer spending shifts from goods to services.

Zacks Industry Rank Indicates Bright Prospects

The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #23, which places it in the top 9% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential.

Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.

Industry Vs. Broader Market

The Zacks Building Products – Retail industry has delivered returns at par with the broader Zacks Retail-Wholesale sector and slightly underperformed the Zacks S&P 500 in the past year.

The industry and the broader sector have risen 32.4% in the past year, and the S&P 500 has rallied 33.2%.

One-Year Price Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 23.88X compared with the S&P 500’s 22.63X. Meanwhile, the sector’s forward-12-month P/E stands at 24.39X.

Over the last five years, the industry traded as high as 23.88X and as low as 14.25X, the median being 19.79X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

5 Building Products Stocks to Watch

Tecnoglass: The Colombia-based company is a leading manufacturer of architectural glass, windows and associated aluminum products that serve the global residential and commercial end markets. TGLS has been gaining from its ability to capitalize on strong residential demand, investments in automation and capacity enhancements, and focus on execution. The company has been delivering solid results for its single-family residential business, which has a shorter cash cycle. Tecnoglass is poised to benefit from its business momentum, particularly strong single-family residential revenues.

The Zacks Rank #1 (Strong Buy) company has been committed to leveraging its vertically integrated structure and innovative product development to boost shareholder value. The stock has skyrocketed 109% in a year. The Zacks Consensus Estimate for TGLS’s 2024 sales indicates growth of 6.9% from the year-ago quarter’s reported figure. The consensus estimate for the current fiscal year’s earnings has moved up 2.6% in the past seven days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: TGLS

Home Depot: The Atlanta, GA-based company is the world’s largest home improvement specialty retailer based on net sales. HD is poised to benefit from ongoing investments. Continued strength in the Pro and DIY categories, and its digital momentum have been the key drivers. Home Depot’s interconnected retail strategy and underlying technology infrastructure have helped consistently boost web traffic for the past few quarters, aiding digital sales.

HD is witnessing significant benefits from the execution of its One Home Depot plan, which focuses on supply-chain expansion, technology investments and digital enhancements. Home Depot has created the fastest, most efficient delivery network in home improvement through options like buy online pick up in store, buy online deliver from store, and curbside pickup. The Zacks Rank #2 (Buy) company has rallied 33.1% in a year. The Zacks Consensus Estimate for HD’s fiscal 2024 sales indicates year-over-year growth of 3.3%. The consensus estimate for current fiscal-year earnings has moved down 0.2% in the past seven days.

Price and Consensus: HD

Lowe’s: The Mooresville, NC-based leading home improvements retailer has been gaining from strong growth in its Pro business. The company has been enhancing the experience of its Pro customers by upgrading pro-focused brands and revamping the pro-service business’s website. LOW has also been well-positioned to capitalize on the demand for the home improvement market, backed by investments in the technology and merchandise category. Gains from the Total Home strategy and the execution of the Perpetual Productivity Improvement initiative are likely to drive the company’s results in the near and long term. The Total Home strategy has been resonating well with Pro and DIY customers for a while.

LOW has been progressing well with advancements in the digital channel. Lowe's is investing in enhancing omni-channel retailing capabilities. Management is also committed to enhancing the Pro offerings, expanding the company’s market share and driving the operating margin. The Zacks Consensus Estimate for its fiscal 2024 sales and earnings indicates declines of 3.9% and 9.6%, respectively, from the year-ago quarter’s actuals. The consensus estimate for current fiscal-year earnings has moved up 0.2% in the past seven days. Shares of the Zacks Rank #3 (Hold) company have risen 33% in a year.

Price and Consensus: LOW

Fastenal: The Winona, MN-based wholesale distributor of industrial and construction products has been benefiting from strong demand for manufacturing and construction equipment, as well as supplies. The company’s focus on virtual platforms to boost customer engagement is improving sales and driving growth. Cost-control strategies like automating warehouses, increasing delivery efficiency through its trucking network and selling more private-level products with higher margins are aiding FAST to improve efficiency, thereby increasing returns.

Industrial vending is one of the primary growth drivers for Fastenal and has the potential to significantly increase sales and profits. The Zacks Rank #3 company is striving to boost its onsite location portfolio, in which a mini-Fastenal shop is located in a customer’s facility. The FAST stock has risen 39.1% in a year. The Zacks Consensus Estimate for Fastenal’s 2024 sales and earnings indicates year-over-year growth of 3.1% and 0.5%, respectively. The consensus estimate for current fiscal-year earnings has been unchanged in the past 30 days.

Price and Consensus: FAST

Beacon Roofing: The Herndon, VA-based company is the largest publicly traded distributor of residential and non-residential roofing materials, and complementary building products in the United States and Canada. BECN has been gaining from several initiatives to drive its long-term ambition of growing and enhancing customer experience; expanding the top line and the margin; and boosting value for customers, suppliers, employees and shareholders. The company is focused on its Ambition 2025 targets (announced on Feb. 24, 2022), which emphasize operational excellence, above-market growth trajectory and accelerated stockholder value creation.

Beacon Roofing has been focused on four key strategic initiatives — organic growth, digital, On-Time and Complete, and branch operating performance — which have been boosting sales and helping improve operating profitability. Shares of the Zacks Rank #3 company have rallied 29.8% in a year. The Zacks Consensus Estimate for Beacon Roofing’s 2024 sales indicates growth of 7.2% from the year-ago quarter’s actual. The consensus estimate for current fiscal-year earnings has moved down 0.4% in the past 30 days.

Price and Consensus: BECN

Zacks Investment Research

Last week, the Nasdaq Composite, the S&P 500 and the Dow Jones Industrial Average climbed 5.7%, 4.7% and 4.6%, respectively. The S&P 500 briefly breached the 6,000 mark and closed with its biggest weekly percentage gain in a year, while the Dow rose above 44,000 for the first time.

Throughout the historic week, trade was dominated by the fate of the U.S. presidential elections, and a Donald Trump landslide coupled with a Republican sweep of the Congress and the Senate sent the markets soaring. Financial institutions, small-cap organizations and home-grown companies eagerly awaiting import tariff protection held sway over the markets. The service sector showed incredible growth. The Fed reduced interest rates by a further 25 basis points per expectations.

However, it remains to be seen how long this market upswing based on the “Red Sweep” sustains with actual policy moves a fair few months away.

Regardless of market conditions, we, here at Zacks, provide investors with unbiased guidance on how to beat the market.

As usual, Zacks Research guided investors over the past three months with its time-tested methodologies. Given the prevailing market uncertainty, you may want to look at our feats to prepare better for your next action.

Here are some of our key achievements:

Edenor and Kroger Surge Following Zacks Rank Upgrade

Shares of Empresa Distribuidora y Comercializadora Norte Sociedad Anonima EDN have gained 40.5% (versus the S&P 500’s 7.8% increase) since it was upgraded to a Zacks Rank #2 (Buy) on September 12.

Another stock, The Kroger Co. KR, which was also upgraded to a Zacks Rank #2 on September 12, has returned 16.3% since then.

Zacks Rank, our short-term rating system, has earnings estimate revisions at its core. Empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

A hypothetical portfolio of Zacks Rank # 1 (Strong Buy) stocks returned +14% in the year-to-date period through October 7th, 2024, vs. +22.2% for the S&P 500 index and +12.4% for the equal-weight version of the S&P 500 index.

This hypothetical portfolio returned +20.63% in 2023 vs. +24.83% for the S&P 500 index and +15% for the equal-weight S&P 500 index.

The portfolio of Zacks Rank #1 stocks is an equal-weight portfolio, while the S&P 500 index is a market-cap-weighted index that has been notably distorted by the concentrated performance of mega-cap stocks since late 2022.

The Zacks Model Portfolio - consisting of Zacks Rank #1 stocks – has outperformed the S&P index by almost 13 percentage points since 1988 (Through October 7th, 2024, the Zacks # 1 Rank stocks generated an annualized average return of +24.1% since 1988 vs. +11.2% for the S&P 500 index).

You can see the complete list of today’s Zacks Rank #1 stocks here >>>

Check Edenor’s historical EPS and Sales here>>>

Check Kroger’s historical EPS and Sales here>>>

Zacks Recommendation Upgrades Masimo and Fortinet

Shares of Masimo Corporation MASI and Fortinet, Inc. FTNT have advanced 41.2% (versus the S&P 500’s 8.5% increase) and 21.7% (versus the S&P 500’s 4.7% rise), since their Zacks Recommendation was upgraded to Outperform on September 5 and September 20, respectively.

While the Zacks Rank is our short-term rating system that is most effective over the one- to three-month holding horizon, the Zacks Recommendation aims to predict performance over the next 6 to 12 months. However, just like the Zacks Rank, the foundation for the Zacks Recommendation is trends in earnings estimate revisions.

The Zacks Recommendation classifies stocks into three groups — Outperform, Neutral and Underperform. While these recommendations are determined quantitatively, our analysts have the flexibility to override them for the 1100+ stocks they closely follow based on their better judgment of factors such as valuation, industry conditions and management effectiveness than the quantitative model.

To access our research reports with Zacks Recommendations for the 1100+ stocks we cover, click here>>>

Zacks Focus List Stocks Palantir, Axon Shoot Up

Shares of Palantir Technologies Inc. PLTR, which belongs to the Zacks Focus List, have gained 82% over the past 12 weeks. The stock was added to the Focus List on March 26, 2024. Another Focus-List holding, Axon Enterprise, Inc. AXON, which was added to the portfolio on June 6, 2020, has returned 61.4% over the past 12 weeks. The S&P 500 has advanced 12.1% over this period.

The Focus List portfolio returned +16.18% in 2024 (through October 31st) vs. +20.99% for the S&P 500 index and +13.29% for the equal-weight S&P 500 index.

The 50-stock Zacks Focus List model portfolio returned +31.44% in 2023 vs. +26.28% for the S&P 500 index and +13.61% for the equal-weight S&P 500 index. In 2022, the portfolio produced -15.2% vs. the S&P 500 index’s -17.96%.

Since 2004, the Focus List portfolio has produced an annualized return of +11.69% (through October 31st, 2024). This compares to a +10.29% annualized return for the S&P 500 index and +10.12% for the equal-weight version of the index in the same time period.

Unlock all of our powerful research, tools and analysis, including the Focus List, Zacks #1 Rank List, Equity Research Reports, Zacks Earnings ESP Filter, Premium Screener and more, as part of Zacks Premium. Gain full access now >>

Zacks ECAP Stocks Oracle & Fair Isaac Make Significant Gains

Oracle Corporation ORCL, a component of our Earnings Certain Admiral Portfolio (ECAP), has jumped 37.7% over the past 12 weeks. Fair Isaac Corporation FICO has followed Oracle with 33.1% returns.

The Zacks Earnings Certain Admiral Portfolio (ECAP), which consists of 30 concentrated, ultra-defensive, long-term Buy-and-Hold stocks, returned +1.97% for September 2024 vs. the S&P 500 index’s +2.14% return (IVV ETF).

For the year-to-date period (through the end of September 2024), the portfolio returned +20.62% vs. +22.1% for the S&P 500 index.

In 2023, the portfolio returned +12.17% vs. +26.28% for the S&P 500 index. The portfolio returned -4.7% in 2022 vs. the S&P 500 index’s -17.96%.

With little to no turnover and annual rebalance periodicity, ECAP seeks to minimize capital loss by holding shares of companies whose earnings streams exhibit a proven 20+ year track record of surviving recessionary periods with minimal impact on aggregate earnings growth relative to the overall S&P 500.

The ECAP and many other model portfolios are available as part of Zacks Advisor Tools, a cloud-based solution to access Zacks award-winning stock, mutual fund and ETF research. Click here to schedule a demo.

Zacks ECDP Stocks Fastenal and Paychex Outperform Peers

Fastenal Company FAST, which is part of our Earnings Certain Dividend Portfolio (ECDP), has returned 23.5% over the past 12 weeks. Another ECDP stock, Paychex, Inc. PAYX, has also climbed 18.7% over the same time frame. Of course, the inclination of investors toward quality dividend stocks to secure an income stream amid heightened market volatility contributed to this performance.

Check Fastenal's dividend history here>>>

Check Paychex‘s dividend history here>>>

With an extremely low beta and a history of minimum earnings variability over the last 20+ years, this 25-stock portfolio helps significantly mitigate risk.

The Zacks Earnings Certain Dividend Portfolio (ECDP) returned +1.91% in September 2024 vs. the S&P 500 index’s +2.14% gain and the Dividend Aristocrats ETF’s (NOBL) +2.37%.

For the year-to-date period (through September 30th), the portfolio returned +15.85% vs. +22.1% for the S&P 500 index and +13.78% for NOBL.

The portfolio returned -0.9% in 2023 vs. +26.28% for the S&P 500 index and +8.11% for NOBL. The portfolio returned -2.3% in 2022 vs. -17.96% for the S&P 500 index and -8.34% for NOBL.

Click here to access this portfolio on Zacks Advisor Tools.

Zacks Top 10 Stocks Sprouts Farmers Market Delivers Solid Returns

Sprouts Farmers Market SFM, from the Zacks Top 10 Stocks for 2024, has jumped 201.7% year to date, which compares to the S&P 500 Index’s +25.9% increase.

The Top 10 portfolio returned +43.45% this year through October 31st, vs. +20.99% for the S&P 500 index and +13.29% for the equal-weight version of the index.

The Top 10 portfolio returned +25.15% in 2023 vs. +26.28% for the S&P 500 index.

Since 2012, the Top 10 portfolio has produced a cumulative return of +1,746.65% through October 31st, 2024, vs. +450.50% for the S&P 500 index. The portfolio has produced an average return of +25.5% in the period 2012 through October 31st, 2024, vs. +14.22% for the S&P 500 index and +12.49% for the equal-weight version of the index.

Zacks Investment Research

Fastenal Company FAST recently released its October sales report, wherein average daily sales or ADS grew 2.8% year over year to $30.1 million, moderating sequentially but improving annually. In the prior month, daily sales registered 3.2% growth, and in the year-ago period, the same registered a 1.9% increase.

The ADS is lower than the historical October daily sales growth average of down 2.1% month over month between 2018 and 2023 (excluding 2020).

Net sales in October 2024 were $692.8 million, reflecting an increase of 7.5% year over year, bolstered by an extra sales day.

End markets such as aerospace, government, education, and healthcare showed mixed performance, while construction remained weak in October.

Shares of this wholesale distributor of industrial and construction supplies gained 7% yesterday.

End-Market Perspective, Product Lines & Customers

From an end-market perspective, heavy manufacturing sales improved 3.1% for the month, and other manufacturing increased 4.9% from a year ago. Total manufacturing (which accounted for 74.8% of October 2024 sales) registered 8% growth in October 2024 compared with 7.5% growth a year ago. Non-residential construction dropped 4.9% compared with an 8.8% decrease reported in May 2023.

Fastenal derives sales from Fasteners, Safety and other product lines. Fasteners witnessed a 2% decline in sales last month compared with a 2.6% decrease in the year-ago period. Safety products grew 5.8% in October 2024 compared with a rise of 6.4% a year ago. Other categories improved 5.1% compared with a 3.3% increase a year ago. On a sequential basis, Fasteners products and Other categories sales improved while that of Safety products moderated.

Geographically, sales in the United States grew 2.3% (compared with 1% a year ago), while Canada/Mexico grew 4.2% (compared with 8.2% a year ago). Rest of World sales grew 9.2% compared with 0.4% growth registered in the year-ago period.

In terms of customer/channel, National account daily sales growth advanced 5% in October from a year ago, given the fact that 61% of the top 100 accounts and 49.7% of public branches are expanding. Yet, non-national accounts showed a 1% decline year over year for the month. In the year-ago period, daily sales declined 4% in non-national accounts year over year.

Shares of the company have gained 26.3% over the past three months, better than the industry‘s 15.1% rise. With many shorter-cycle indicators remaining sluggish, it seems the anticipated recovery in the industrial sector for the second half of 2024 is being delayed. Yet, heavy manufacturing end markets are showing strength.

Fastenal’s Zacks Rank and Key Picks

Fastenal currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks from the Zacks Retail and Wholesale Sector are:

Tecnoglass Inc. TGLS currently carries a Zacks Rank #2 (Buy). TGLS has a trailing four-quarter average earnings surprise of 3.1%.

The Zacks Consensus Estimate for TGLS’ current financial-year sales suggests growth of 6.7% but a decline of 13.1% for earnings per share from the year-ago reported numbers.

Vital Farms, Inc. VITL currently carries a Zacks Rank #2. VITL has a trailing four-quarter average earnings surprise of 82.5%.

The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 27% and 88.1%, respectively, from the year-ago reported numbers.

Sprouts Farmers Market, Inc. SFM currently sports a Zacks Rank #1. SFM has a trailing four-quarter earnings surprise of 15.3%, on average.

The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings suggests growth of 11.4% and 28.2%, respectively, from the year-ago reported numbers.

Zacks Investment Research