July 26, 2022, Capri Holdings Limited (NYSE:CPRI) and Autoliv, Inc. (NYSE:ALV)
Luxury brands and car parts are polar opposites. Yet these two players look like the best stocks to buy now.
Stocks ended Monday (July 25, 2022) mixed with light trading as investors braced for what could be the most critical week of the quarter. The Fed’s highly anticipated rate decision will come Wednesday, the GDP print comes Thursday, and half of Nasdaq 100 stocks will report earnings throughout the week. As things currently stand, Capri Holdings Limited (NYSE:CPRI) and Autoliv, Inc. (NYSE:ALV) look like two of the best stocks to buy now.
Capri Holdings is one of the best stocks to buy now because it’s a high-end retail holding company. It’s responsible for brand names such as Versace, Jimmy Choo, and Michael Kors. It recently achieved record-high revenues despite current economic conditions and could have a 45.97% upside with practically flawless fundamentals. As we’ve consistently seen, high-end retailers, compared to discount ones or big box ones, are likely leveraged to inflation’s upside. You can thank a wealthier clientele and their purchasing power for that.
Global auto components company Autoliv, Inc. is another of the best stocks to buy now. With earnings expected to grow by 80.37% in the coming year, and an outstanding shareholder yield, this stock offers considerable growth potential at a steep discount. As its stock gains serious momentum, analysts are also flocking to it in droves, kicking off this week with four upgrades.
Nobody can predict the future, and we are awaiting crucial economic data. But if you dig through the clutter, these companies look like the best stocks to buy now.
Capri Holdings Limited (NYSE:CPRI)
This luxury fashion conglomerate could be staring at a 45.97% upside with virtually flawless fundamentals.
Capri Holdings is a major worldwide fashion retailer and prominent player in the textiles, apparel & luxury goods industry. You may be familiar with its high-end brands such as Versace, Jimmy Choo, and Michael Kors. You or your fancy aunt may have also splurged in one of their 1,200+ stand-alone stores or in-store boutiques.
There are countless reasons why this holding company is one of the best stocks to buy now. The overarching theme is that inflationary pressures affect Capri and its high-end clientele less.
However, beneath this fact, the Company just achieved record-high revenues. It also continues to offer outstanding fundamentals and growth potential at a mouth-watering valuation.
Record Revenues and Outstanding Growth Prospects at a Deep Discount
High-end retailers have largely been immune to inflation because of a simple equation- more money equals affluent customers who continue to pay for luxury brands. For instance, discount retailers like Walmart were clobbered the last two quarters. In contrast, higher-end ones like Nordstrom upgraded their guidance.
Companies like Capri Holdings have high-end brands people are willing to pay for. Its Q4 2022 report (quarter ended March 31) proved this. Capri, first and foremost, reported a record revenue of $1.49 billion, representing a 24% year-over-year increase. This also meant a company-record 5th consecutive quarter of year-over-year revenue gains.
In addition, Capri reported EPS of $1.02, representing a 2.5x year-over-year increase. It also raised its full-year 2023 EPS outlook from $6.60 to $6.85.
But this may only be the beginning for Capri. Consider that its earnings are expected to grow by 7.61% in the coming year. Or how its net income is forecast to grow by 19.4%.
But even more mind-blowing is that you can buy all this growth potential at a deep discount. Capri has all this bubbling promise and trades -33.09% below its highs with the following multiples.
As if you needed more evidence as to why CPRI is an obvious candidate as the best stock to buy now.
Its Fundamentals are About as Flawless as Possible
From almost any fundamental angle you could dissect Capri Holdings, it looks practically flawless. Insider activity alone, for example, could make it one of the best stocks to buy now. Management aggressively bought back shares in the previous quarter. But with a new buyback program worth $1 billion over the next two years, the 5.1 million shares Capri management bought back last quarter may only be the start. This new buyback program will enable 15% of Capri’s outstanding common stock to be funded. So watch out for more bullish insider activity.
Additionally, Capri’s valuation implies an outstanding 8.4% free cash flow yield. Coupled with a record high gross margin of 65.9%, you have all the ingredients of a well-oiled fashion machine.
However, it gets even better from here.
The Company’s 34.9% ROCE is outstanding, and its 17.8% operating margin is nothing to scoff at. Rounded out with an 11.0% ROA (13.4% unlevered), you have a Company that clearly generates a great deal of capital from its equity, assets, and operations.
It probably shouldn’t be such a shock then that Capri has a flawless Piotroski Score of 9, indicating healthy Liquid Balance Sheets, Profitability, and Operating Efficiency.
A “Top Mid-Cap Pick” With a 45.97% Average Upside
TipRanks rates Capri a STRONG BUY. That’s because out of 15 Wall Street analysts offering 12-month price targets in the last 3 months, 13 rated it a BUY compared to just 2 HOLD and 0 SELL. Of these price targets, CPRI currently has a high of $100.00, a low of $50.00, and an average of $69.67. The average price target represents a 45.97% upside from July 25, 2022’s closing price of $47.73.
BTIG Research’s $100 price target from February 2022 isn’t included in those figures because it simply happened too long ago. However, BTIG analyst Camilo Lyon’s explanation as to why the Company was his top mid-cap pick for H2 2022 stands.
Why?
- Plans for additional price increases this fall across its brands. Current price increases have seen little to no customer resistance, which expands on what was said earlier. Inflation does not affect affluent consumers.
- Its $1 billion buyback program and how it could contribute to its raised guidance.
- Its ability to navigate a ‘challenging macro environment.’
- Strong demand trends could position the Company on a path towards $7 billion in revenue and 20% operating margins.
CPRI’s year-to-date low and high are $36.90 and $72.37, respectively.
Autoliv, Inc. (NYSE:ALV)
This global auto components player is seeing its stock soar with recent analyst upgrades coming in droves.
The Sweden-based Autoliv, Inc. is a developer, manufacturer, and supplier of passive safety systems to the automotive industry throughout Europe, the Americas, China, Japan, and the rest of Asia.
Now that the boring stuff is out of the way let’s detail why this Company is one of the best stocks to buy now as one of the most talked about stocks among investors and analysts.
After all, ALV’s received four upgrades yesterday (July 25, 2022) and has seen seven in total since May. Its stock has also surged 26.02% since last month’s year-to-date low of $66.25.
Earnings Could Grow 80+% in the Coming Year
On Friday (July 22, 2022), Autoliv reported its Q2 2022 earnings. It surpassed EPS for the first time in the last four quarters and did so in style by 95.65%. EPS came in at $0.90 per share, beating the estimates of $0.46 per share. On the top-line, revenue also came in at $2.08 billion for the quarter, representing a 2.97% year-over-year increase from $2.02 billion.
It probably shouldn’t be surprising that the stock received four analyst upgrades since reporting.
But what makes this stock one of the best to buy now are its growth prospects. After struggling for much of 2022 and failing to impress analysts, Autoliv’s fortunes appear to be changing.
Perhaps that’s why earnings for Autoliv are expected to grow by 80.37% in the coming year.
The High Shareholder Yield Tells Only a Fraction of ALV’s Fundamental Strength
The first thing that jumps out when it comes to Autoliv being one of the best stocks to buy now is its outstanding twelve months shareholder yield of 10.2%. This figure refers to the total amount of money the Company returns to shareholders in cash dividends, net stock repurchases, and debt paydown.
Needless to say, it compares very favorably to many competitors.
Source: Finbox
However, this yield only explains a fraction of why Autoliv is one of the best stocks to buy now. Breaking down its shareholder yield into its 3.44% dividend yield makes it look even more attractive. The Company does not have a long track record of dividend increases. Still, its projected payout ratio of 33.16% next year indicates Autoliv will be able to sustain or increase its dividend. Projections currently stand at dividends, growing 3.2% at a 2.0% 5-year CAGR.
But this could also be conservative. Especially considering the Company’s cash flows can sufficiently cover interest payments or how the Company has a 15.7% gross margin and 13.1% ROCE.
A Surging Stock That Remains Deeply Undervalued
Although the ALV stock has skyrocketed in the last week, especially since its 2022 lows in June, it remains over 23% below its highs and is deeply undervalued.
This becomes especially evident as its forward P/E ratio remains below 20x, and forward and trailing price-to-sales are 0.8x and 0.9x, respectively.
As the Stock Continues Surging, More Technical BUY Signals Appear
ALV is gaining significant momentum, and technical BUY signals are mounting by the day.
BarChart explicitly mentions the following indicators as BUY signals:
- 20 Day Moving Average
- 20 – 50 Day MACD Oscillator
- 20 – 100 Day MACD Oscillator
- 50 Day Moving Average
- 50 – 100 Day MACD Oscillator
- 100 Day Moving Average
Additionally, with the stock approaching the eclipse of its 200-day moving average without an overbought RSI, the chances of the stock breaking even higher are becoming increasingly likely.
That’s another reason ALV stock is one of the best stocks to buy now.
Analysts Kicked Off the Week With Four ALV Upgrades to Go With Seven Total Since May
On the surface, ALV’s average upside is relatively ho-hum. 10 Wall Street analysts offered 12-month price targets for Autoliv in the last 3 months, with the average price target of $87.00 representing a 4.20% upside from July 25, 2022’s $83.49 closing price. This also considers a high forecast of $103.00 and a low forecast of $75.00.
But if you look at analyst coverage from yesterday (July 25, 2022) alone, the upside, in reality, could be much more tremendous.
- Robert W. Baird- Boosted target from $77.00 to $81.00
- Deutsche Bank- Boosted target from $94.00 to $103.00
- Mizuho- Maintained a BUY rating and boosted target from $90.00 to $94.00
- Citigroup- Boosted target from $75.00 to $89.00
This only adds to the upgrades ALV received from Wells Fargo, BNP Paribas, and UBS Group since May 9, 2022.
ALV’s year-to-date low and high are $66.25 and $108.62, respectively.
