July 12, 2022, Five Below, Inc. (NASDAQ:FIVE) and PepsiCo, Inc. (NASDAQ:PEP)
As recession fears mount, a discount retailer and a consumer goods giant sit as the best stocks to buy now.
Following a decent week, reality set back in. Anticipating a busy week for economic data, including the latest CPI reading and second-quarter earnings, the indices dipped. The Dow declined 0.52%, the S&P 500 fell 1.15%, and the Nasdaq tanked 2.26%. As investors continue to deal with headwinds and recession fears, consider Five Below, Inc. (NASDAQ:FIVE) and PepsiCo, Inc. (NASDAQ:PEP) as two of the best stocks to buy now.
First is discount retailer Five Below. Although the stock is down roughly -42% year-to-date, it sits as a STRONG BUY with attractive upside and year-over-year growth. As supply chain disruptions, logistics expenses, and inflation continue to ravage retailers, Five Below is positioned differently. It’s a popular specialty value retailer which offers anything you can think of for $5 or less. Furthermore, it is undergoing a business transformation that could strengthen it to roll with economic punches and grow its market share. That, however, only scratches the surface as to why FIVE is one of the best stocks to buy now.
Then there’s PepsiCo. What more can you say about a beverage, foods, and consumer goods enterprise that’s remained resilient in current conditions, sits near 52-week highs, and crushed its latest quarterly earnings? This only scratches the surface, though, as to why PepsiCo is one of the best stocks to buy now. Because according to analysts, it could have even more room to run.
There are many stocks to choose from; do your due diligence. It’s a hazardous environment, but these companies look like two of the best stocks to buy now.
Five Below, Inc. (NASDAQ:FIVE)
Rated a STRONG BUY, this discount retailer is a top recession play with over 42% of upside.
Discount retailer Five Below is a stock that’s pulled back significantly this year and remains criminally undervalued. Yet based on operations, strategic restructuring, earnings, and fundamentals, this play on record-breaking inflation and recession fears is only one of the best stocks to buy now.
The Restructuring of its Stores Could Bolster Revenue
Five Below is a famous specialty value retailer that sells a plethora of goods for $5 or less. These goods include clothing, home products, candy, toys and games, household products, cosmetics, and accessories.
That fact alone makes it one of the best stocks to buy now and a top recession hedge.
However, its corporate transformation could position it to benefit even more from whatever this economy faces. Its Triple Double strategy program will remodel roughly half its stores into the new Five Beyond format by 2022’s end. Under this new format, of its 1,190 stores, over 750 of its stores and 200 by the end of fiscal 2022 will be converted. All new store openings will also be in this format.
This new format is a store-within-a-store concept and includes Room Worlds, next-gen tech, and a potential doubling of its SKUs.
Stronger-Than-Expected Q1 Earnings Have Five Below Looking Recession-Proof
Many retailers have stumbled in 2022. While Five Below’s stock performance is no exception, its Q1 earnings report from June 8, 2022, had some things to really like.
First, EPS beat consensus estimates by $0.01 and came in at $0.59. Revenue also saw 7% year-over-year growth while many retailers struggled to keep their heads above water.
Additionally, the Company drastically increased its inventory at the beginning of the year to set up a solid second half. It also announced a $100 million stock buyback program.
With initiatives taken to bolster its supply chain management and distribution capabilities, Five Below’s revenue could have a 23.3% 5-year CAGR, and its earnings could grow 24.65% in the coming year.
Five Below’s Margins Add Meat to Its Bones
As Five Below reimagines its vision for future growth, its fundamentals show that it’s a Company more than ready to act on it.
First and foremost, cash flows can sufficiently cover interest payments. It also scored a respectable 7 out of 9 Piotroski Score, indicating healthy Liquid Balance Sheets, Profitability, and Operating Efficiency. A deeper dive into several of its margins add further context to this, such as its
Its margins also indicate a well-run company that can turn a profit and achieve its goals, including its
This is pure bargain hunting with fundamentals like that, and the stock down roughly 42% year-to-date.
Perhaps That’s Why Five Below is a STRONG BUY, With an Average Upside of Over 42% TipRanks rates Five Below as a STRONG BUY. Of the 20 Wall Street analysts offering 12-month price targets for FIVE in the last 3 months, 16 rate it BUY compared to 4 HOLD and 0 SELL. With a street-high forecast of $216.00, a low of $140.00, and an average of $171.21, the FIVE stock could have a 42.65% upside from July 11, 2022’s closing price of $120.02.
FIVE’s year-to-date low and high are $109.59 and $214.50, respectively.
PepsiCo, Inc. (NASDAQ:PEP)
The consumer products mainstay crushed Q2 earnings, sits near 52-week highs and could have even more room to run.
PepsiCo is a stock that has all you’re looking for in an environment like this. It has healthy fundamentals, a strong dividend, bullish technicals, and long-standing stable operations in the big picture.
In the current picture, it just clobbered its Q2 earnings estimates and outperformed the market. The best part is it still has more room to run.
It’s simple. Pepsi is the world’s third-largest consumer packaged goods (CPG) company. Besides Pepsi sodas, it has many well-known brands in over 200 countries.
Source: StartUp Talky
So without further ado, let’s do a deep dive on the Company from a micro and a macro perspective. That should explain why it’s one of the best stocks to buy now.
Pepsi’s Latest Earnings and Upgraded Guidance Make a Significant Statement
Thus far, CPG companies have not felt the pain of inflation. In fact, they’ve benefitted. Consumers have slashed their restaurant expenses in favor of spending money on eating at home.
PepsiCo, however, based on its latest earnings report, is benefitting more than anyone expected.
Before the market opened on July 12, 2022, PepsiCo reported Q2 2022 earnings. It blew many estimates out of the water despite inflation, supply chain issues, and the Russia-Ukraine War.
Pepsi reported the following:
- EPS of $1.86 adjusted vs. $1.74 expected
- Revenue increased 5.2% to $20.23 billion and beat forecasts of $19.51 billion
- Organic revenue climbed 13%
- Frito-Lay North America reported organic revenue growth of 14%
- The North American beverage unit saw organic revenue growth of 9%. Gatorade, Aquafina, and Lifewtr saw double-digit quarterly growth.
- Quaker Foods North America saw organic revenue growth of 18%. It was bolstered by double-digit growth in rice, pasta, oatmeal, and cookies.
With impressive resilience, Pepsi strengthened its revenue guidance for FY 2022 primarily due to consistent demand for pricier snacks and sodas. The Company now expects organic revenue growth of 10% compared to its prior forecast of 8%. This also marks the second consecutive quarter Pepsi hiked its revenue forecast without updating its earnings estimates.
Revenue is also expected to see a 5-year CAGR of 4.8%, while net income could grow 21.0% and average 10.1% over the next five fiscal years. Earnings in the coming year are also projected to increase by 8.28%.
Pepsi is a Long-Term and Short-Term Outperformer With Outstanding Fundamentals and Dividends
Pepsi has been around since 1898, so it’s probably not so shocking to see stability and strength when looking at its 20-year chart. A lot can happen in 20 years, and PepsiCo has shown its resilience.
However, what may be even more impressive is how Pepsi has performed in 2022. Markets have sold off, inflation and rising rates have eaten into profits, and recession fears have mounted. The Dow has corrected, the S&P floats in and out of a bear market, and the Nasdaq is deeply bearish. PepsiCo is an outlier that’s kept its head above water.
Moreover, while indices have staged a minor recovery over the last few weeks, Pepsi significantly outperformed.
This alone makes Pepsi one of the best stocks to buy now. However, it could have even more room to run and navigate treacherous waters with its rock-solid fundamentals.
Consider its margins indicating profitability and operational efficiency, including its
In addition, Pepsi is a strong dividend payer. Its 2.68% dividend yield is first and foremost higher than the bottom 25% of all dividend-paying stocks. It’s also increased its dividend for 51 straight years. Its dividend is expected to grow 12.5% at a 7.4% 5-year CAGR. Its dividend payout ratio is also 62.93% and is likely to be at 63.98% next year based on its earnings. This indicates that PepsiCo will be able to sustain or increase its dividend.
Several Technical Indicators Point Towards Pepsi Being a BUY
According to BarChart, several short-, medium-and long-term technical signals make Pepsi look like one of the best stocks to buy now.
These indicators include its
- 20-Day Moving Average
- 50-Day Moving Average
- 50 – 100 Day MACD Oscillator
- 50 – 200 Day MACD Oscillator
- 100-Day Moving Average
- 150-Day Moving Average
- 200-Day Moving Average
- 100 – 200 Day MACD Oscillator
With many charts looking quite ugly these days, technical indicators that look as strong as Pepsi’s cannot be ignored.
Despite Relative Outperformance, Analysts Say PepsiCo Still Has Room to Run
PepsiCo could have even more room to run based on the forecasts of 14 Wall Street analysts offering 12-month price targets for PEP in the last 3 months.
PEP currently has a street-high price target of $198.00, a low of $145.00, and an average of $180.00, representing a 5.59% upside from July 11, 2022’s $170.47 close.
However, several recent price targets indicate a 5.59% average upside from $180.00 may be overly conservative. This includes price targets such as
- JPMorgan Chase & Co. $185.00
- Barclays $183.00
- UBS Group $182.00
- Guggenheim $193.00
- Citigroup $198.00
So perhaps we’re not the only ones calling Pepsi one of the best stocks to buy now.
PEP’s year-to-date low and high are $153.37 and $177.62, respectively.