July 13, 2022, Constellation Brands, Inc. (NYSE:STZ) and Knight-Swift Transportation (NYSE:KNX)
Recent upgrades and diversified positioning make these the best stocks to buy now.
CPI inflation data came in even hotter than expected at 9.1%. Investors saw this coming, too, as the market sold off on Tuesday (June 12, 2022) for the second consecutive day. The Dow declined 0.62%, the S&P 500 fell 0.92%, and the Nasdaq shed 0.95%. Amid this uncertain environment, however, Constellation Brands, Inc. (NYSE:STZ) and Knight-Swift Transportation (NYSE:KNX) could be two of the best stocks to buy now.
While both companies operate in different fields, each received recent analyst upgrades and could have immense potential.
Following other consumer packaged goods (CPG) companies such as Pepsi that have benefited from inflation, Constellation Brands is one of the best stocks to buy now. Moreover, it has rock-solid fundamentals, long-term outperformance, and all the components you want nowadays. Best known for brands such as Corona, Modelo, Pacifico, SVEDKA, and more, this prominent beverage industry player has seen its stock price soar since mid-March. It could have even more room to run based on a Barclays price target upgrade on July 5, 2022, and a Redburn Partners BUY rating on July 13, 2022.
Then there’s Knight-Swift Transportation which comes in as another of the best stocks to buy now. Recent analyst activity, first and foremost, points to this prominent player in the road & rail industry being a STRONG BUY. Moreover, this Company has excellent financial health and a dirt-cheap valuation. Watch this stock over the next few months, especially if diesel prices continue easing.
While all stocks in this environment carry risks, these two specifically stand out as two of the best stocks to buy now.
Constellation Brands, Inc. (NYSE:STZ)
Rated as a STRONG BUY, this beverage conglomerate has been on fire since mid-March and could have over 15% of room to run.
There are numerous reasons why Constellation Brands is one of the best stocks to buy now. Brand equity, strong stock performance, fundamentals, and analyst upside just scratch the surface.
With consumer brand stocks some of the largest beneficiaries from inflation, Constellation, and its well-known products could be set to soar even more.
Following Other Consumer Stocks, Constellation Crushed Q1 Earnings and Could Have Mouth-Watering Growth Projections
Consumer brands over the last few months have reported strong earnings.
General Mills, for example, reported EPS of $1.12 compared to forecasts of $1.01 and revenue of $4.89B compared to estimates of $4.8B.
Alimentation Couchen A also reported Q4 EPS of $0.55 compared to expectations of $0.51 and revenue of $16.43B compared to estimates of $15.43B.
Most recently, Pepsi reported blowout Q2 2022 earnings of EPS of $1.86 adjusted vs. $1.74 expected and revenue of $20.23B compared to forecasts of $19.51B.
Constellation has been no exception. On June 30, 2022, Constellation Brands announced an EPS of $2.66 compared to the anticipated $2.55. This also marked a 14% year-over-year increase. Revenue also rose 17% to $2.36B compared to the projected $2.16B.
Most notably, Constellation’s beer business saw sales growth of 21%, including a 17.3% increase in shipment volumes and 8.7% depletion growth.
It also reiterated FY2023 guidance of EPS coming in at $11.20-$11.50 compared to the consensus of $11.06.
We will see what happens with its following earnings report, which will likely come in October. However, this report was strong and lends credence to some eye-popping growth projections.
- In the coming year, earnings for Constellation Brand could grow by 35%.
- Constellation Brands’s net income growth forecast is 5,194.6%.
- Constellation Brands’s net income growth forecast is expected to average 1,047.1% over the next five fiscal years.
This Long-Term Outperformer Has Seen Significant Momentum Since March
One of the best things about Constellation Brands’ stock is its decade-long outperformance. Especially compared to some leading consumer brands.
Despite the potential for rate hikes and inflation to negatively impact consumer sentiment, the STZ stock has not gotten the memo. Since touching a 4-month low of $209.02 in mid-March, the stock has rocketed 15.09% to its July 12, 2022, close of $240.56.
Perhaps the fact that management has been aggressively buying back shares has helped this rally.
Efficient Fundamental Margins and a Strong Dividend
We mentioned earlier Constellation’s strong earnings report and substantial growth projections. With margins indicating a fundamentally sound machine, the picture for Constellation becomes even prettier. Its margins add to the story of it being one of the best stocks to buy now.
STZ boasts an impressive
Constellation Brands, again, is a consumer staple stock. Outside of being a beneficiary from inflation, consumer staple stocks are also some of the best stocks to buy now because they add defense to portfolios through stable dividends.
Constellation, first and foremost, has a 1.3% dividend yield. That is higher than the bottom 25% of all stocks that pay dividends. With a healthy payout ratio of 48.34%, there’s a chance this dividend will keep growing and expand by 5.3% at a 13.7% 5-year CAGR.
STZ Has Bullish Technicals Too
Another reason why Constellation Brands is one of the best stocks to buy now is its bullish technicals. BarChart has spotted several short-term, medium-term, and long-term indicators flashing BUY signals. These include STZ’s
- 20-Day Moving Average
- 20-100 Day MACD Oscillator
- 20-200 Day MACD Oscillator
- 50-100 Day MACD Oscillator
- 50-150 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
A Recently-Upgraded STRONG BUY Whose Average 15.29% Upside May Be Conservative
TipRanks rates Constellation Brands a STRONG BUY. Out of 13 Wall Street analysts offering 12-month price targets for STZ in the last 3 months, 11 rate it a BUY compared to 2 HOLD and 0 SELL. With a street-high forecast of $305.00, a low of $240.00, and an average of $277.33, STZ could have a 15.29% upside from July 12, 2022’s close of $240.56.
This, however, may be conservative.
In the last week alone, Redburn Partners initiated BUY coverage, and Barclays gave it a $281.00 price target. Since June, many others have given Constellation Brands encouraging coverage, too, including
- Goldman Sachs maintaining BUY and a $275.00 price target
- UBS Group BUY and a $270.00 price target
- Morgan Stanley OVERWEIGHT and boosting its target from $294.00 to $298.00
- Wells Fargo OVERWEIGHT and boosting its target from $275.00 to $280.00
STZ’s year-to-date low and high are $207.59 and $261.52, respectively.
Knight-Swift Transportation (NYSE:KNX)
This recently upgraded transportation giant is a STRONG BUY with as much as 44+% of upside.
Knight-Swift Transportation is a prominent player in the road & rail industry. It provides truckload transportation services in the United States, Mexico, and Canada and has quite the fleet to show off, including
- 18,019 tractors
- 67,606 trailers
- 10,847 intermodal containers
With supply chains and logistics of paramount importance nowadays, its services for industries including retail, food and beverage, consumer products, paper products, transportation and logistics, housing and building, automotive, and manufacturing cannot be understated.
Diesel prices are still sky-high, and that’s predictably weighed on the stock. However, with prices showing signs of cooling, this stock is trading at a mouth-watering valuation as we embark on the year’s second half. Even if reality warns us of a recession, KNX is one of the best stocks to buy now as a value play for the long term.
Outstanding Cash Flows and Fundamentals
KNX will report earnings next week, and we will see what happens with that. But based on how outstanding this firm’s cash flows, fundamentals, and dividends are, we’d be hard-pressed to not anticipate another earnings beat. After all, last quarter, KNX beat on both the bottom and top lines. EPS came in at $1.35, $0.09 better than the analyst estimate of $1.26. Revenue came in at $1.83B versus the consensus estimate of $1.76B.
So what makes KNX’s fundamentals so strong? For one, cash flows can sufficiently cover interest payments.
Second of all, KNX is financially sound and well managed. Its recent earnings showed that despite headwinds, it remains a well-oiled machine with consistent demand and growth potential. Revenue, for example, is expected to see a 5-year CAGR of 39.9% and net income to grow by 18.6%.
This is despite the surge in diesel prices and other costs.
Moreover, strong earnings should allow management to continue dividend payments. Although it has only a 1.0% dividend yield, it’s projected to grow 50.0% at a 10.8% 5-year CAGR.
However, what truly captures KNX’s fundamental strength is its Piotroski Score. The Piotroski Score is a rating developed by Stanford accounting professor Joseph Piotroski. Companies are scored 0-9 based on healthy Liquid Balance Sheets, Profitability, and Operating Efficiency.
KNX scored an 8 out of 9.
A deeper dive into several of its margins add further context to this, such as its
By Many Metrics, KNX is Severely Undervalued
KNX is down over 20% year-to-date, which isn’t great. Yet as the stock begins moving well off its year-to-date lows, it continues to offer investors deep value by many metrics.
First, KNX’s current valuation implies a strong free cash flow yield of 9.5%.
Second of all, almost all of its valuation multiples depict a severely undervalued stock, including its
- 6x trailing P/E
- 0x forward P/E
- 12 PEG
- 2x price-to-book
- 2x trailing price-to-sales
- 1x forward price-to-sales
Additionally, a recent valuation model from analysts at Simply Wall St forecasts the stock’s intrinsic value to be $63.43. Based on this model, after closing at $48.39 on July 12, 2022, the stock could be trading over 31% below its actual value.
Recent Analyst Buzz Gives This STRONG BUY a Potential 44.66% Upside
Like STZ, KNX is a STRONG BUY, according to TipRanks. That’s because out of 10 Wall Street analysts offering 12-month price targets for KNX in the last 3 months, 8 rate is a BUY compared to just 2 a HOLD and 0 a SELL.
That alone should make it one of the best stocks to buy now.
KNX currently has a street-high price target of $70.00, a low of $48.00, and an average of $59.38, representing a 22.71% upside from July 12, 2022’s $48.39 close.
However, after Credit Suisse initiated coverage on the stock on June 27, 2022, with an OUTPERFORM rating and street-high $70.00 target, the average target may be conservative. KNX could have a 44.66% upside based on this.
Most recently, on July 12, 2022:
- Wolfe Research upgraded the stock from UNDERPERFORM to PEER PERFORM
- Barclays gave it a $58.00 price target and an OVERWEIGHT rating
- Evercore ISI upgraded it from IN-LINE to OUTPERFORM.
KNX’s year-to-date low and high are $42.50 and $62.29, respectively.