July 5, 2022, The Home Depot, Inc. (NYSE:HD) and NVIDIA Corporation (NASDAQ:NVDA)
These STRONG BUYS are two of the best stocks to buy now, with sell-offs that do not match gargantuan sales.
The market’s worst first half in over 50 years is finally over. Yet, the week leading up to the 4th of July saw relatively light trading but more declines. The Dow slipped 1.3%, the S&P sank 2.2%, and the Nasdaq plunged 4.1%. Yet fear can be your best friend when finding the best stocks to buy now. Consider stocks with The Home Depot, Inc. (NYSE:HD) and NVIDIA Corporation (NASDAQ:NVDA) with resilient and robust sales and potentially overdone sell-offs.
Home Depot, last quarter, shook off the same headwinds as other retailers yet crushed earnings and revenue estimates while raising full-year guidance. Yet it remains down roughly 32% year-to-date and exceptionally buyable. Consider its rock-solid fundamentals, strong cash flow, consistent revenue growth, and stable dividend. Moreover, as it continues to see robust demand, it is one of the best stocks to buy now and a defensive play.
Then there’s NVIDIA. NVIDIA has been a popular stock seemingly forever, and it rarely trades at a discount like this. Headwinds and all, this chip stock’s plummet does not match its consistently strong sales. It sits as a beaten-down name with solid cash flows, robust operations, colossal analyst upside, and long-term growth potential. Furthermore, NVIDIA’s stock decline could mean a recession is already priced-in; economic cycles and chip stocks primarily go hand-in-hand. Yet, because NVIDIA serves cloud computing and artificial intelligence, it could be more resilient than peers and at or around a bottom.
These stocks do carry some risks. Home Depot may have exposure to slowing home sales and materials prices. NVIDIA has exposure to tech risks and demands from industries like cars, computers, and factory equipment.
But, do your homework. These companies look like two of the best stocks to buy now.
The Home Depot, Inc. (NYSE:HD)
Rated as a STRONG BUY, the world’s largest home improvement retailer is at an attractive entry point with a 25.75% upside.
Home Depot, the world’s largest home improvement retailer, benefited from a booming housing market and 0% interest rates for the last two years. Now, it’s facing the same headwinds as other retailers, such as 40+ year high inflation and rising interest rates.
Home Depot’s CFO seemed to acknowledge this.
Yet despite these headwinds, Home Depot stands apart from other retail giants and sits as one of the best stocks to buy now to add some defensive protection to your portfolio.
Stronger-Than-Expected Q1 Earnings Have Bolstered HD’s Positioning
We will see what happens when HD reports its Q2 earnings on or around August 16, 2022. But for now, HD reported better-than-expected first-quarter earnings while boosting its full-year guidance.
This fact is awe-inspiring because it came weeks after fellow big-box retailers Walmart and Target sent the market into a downward spiral back in May based on discouraging earnings and gloomy full-year guidance.
In Q1, Home Depot recorded its highest first-quarter sales in company history, saw management buy back shares aggressively, upgrade its 2022 guidance, and report the following quarterly figures:
- EPS increased 6% and came in at $4.09, way above consensus forecasts of $3.68.
- Revenue rose 3.8% to $38.9 billion and topped estimates of $37.5 billion.
- Same-store sales increased 2.2% YoY and easily beat Refinitiv’s 1.4% forecast
- Comparable sales in the U.S. rose 1.7% and also topped Street forecasts.
There are chances Q2 earnings could see a slowdown. However, potential growth projections tell a different story.
For one, projections show Home Depot’s earnings will grow by 6.19% in the coming year, from $16.47 to $17.49 per share. Forecasts also reveal revenue to see a 9.8% 5-year CAGR while net income could grow 3.2%.
Even if Demand Slows, Home Depot’s Fundamentals Can Blunt the Impact and Help You Get Defensive
Despite the potential for rate hikes to negatively impact the housing markets, Home Depot remains one of the best stocks to buy now. Although home prices could flatten over the next 18 to 24 months, and conventional wisdom says to tread lightly on Home Depot, this firm is about as fundamentally sound as possible.
First, Home Depot saw double-digit revenue growth over the last 2 years. This growth, in turn, has generated impressive cash flow that can sufficiently cover interest payments.
Its margins also indicate a fundamentally sound enterprise capable of blunting economic setbacks. Its astronomical 1,890.0% ROCE, for example, speaks volumes about HD’s ability to generate a return from its equity.
Furthermore, HD boasts an impressive
Second, Home Depot has taken necessary steps to restructure its business to combat any housing market downturns. It’s expanded its focus to professional contractors, who account for approximately 45% of its revenue. Moreover, the Company stopped opening new stores to slash costs.
Finally, Home Depot is a consumer staples stock. Consumer staple stocks like HD are some of the best stocks to buy now because they add defense to portfolios through their stable dividends. We may or may not already be in a recession, but if you haven’t started preparing for one, now is the time.
For five consecutive years, Home Depot has hiked its quarterly dividend by an average of 22% per year. With a solid payout ratio of 50%, there’s a chance this dividend will keep growing. Its current dividend yield of 2.8% could expand by 15.2% at a 19.0% 5-year CAGR.
Home Depot- Long-Term Outperformer At a VERY Buyable Level
It’s simple. Home Depot is one of the best stocks to buy now because it is a long-term outperformer; all you need to do is stare at its chart from the last decade to see the evidence.
Finally, HD is trading at a buyable level and at a mouth-watering valuation. The stock, first and foremost, is down roughly 32% year-to-date.
Moreover, it’s trading with a 17.4x trailing P/E and a 16.6x forward P/E.
Perhaps this is why management has been aggressively buying back shares.
HD is a STRONG BUY With an Average Upside of 25.75% and Potentially 60+%
TipRanks rates Home Depot as a STRONG BUY. Out of 22 Wall Street analysts offering 12-month price targets for Home Depot in the last 3 months, 17 rate it a BUY compared to 5 HOLD and 0 SELL. With a street-high forecast of $450.00, a low of $285.00, and an average of $350.95, the HD stock could have a 25.75% upside from July 1, 2022’s closing price of $279.08.
Based on analyst activity and the fact that the stock is trading so far below its highs, this average price target could be exceedingly conservative.
For example, following its Q1 earnings beat in May, Credit Suisse analyst Dan Oppenheim gave the stock its street-high, $450.00 price target with an OUTPERFORM rating. That represents a 61.24% upside from $279.08.
Several other analysts since May also gave the stock price targets well above its $350.95 average, including
- Evercore ISI’s $360.00 price target
- Truist Financial’s $375.00 price target
- Jefferies Financial Group’s $400.00 price target
HD’s year-to-date low and high are $264.51 and $417.84, respectively.
NVIDIA Corporation (NASDAQ:NVDA)
A bull case for this STRONG BUY chip giant says we’re near a bottom with over a potential 175% upside.
The environment for tech stocks, namely semiconductor stocks, is uncertain. Rising rates mean the cost of borrowing is higher, and nobody wants to touch tech stocks with a 10-foot pole. A semiconductor shortage doesn’t help, affecting many other industries beyond tech. It is a hazardous environment, to say the least.
However, companies like NVIDIA are different. Long one of the market’s most trendy stocks like Tesla, NVIDIA currently sits at an unprecedented discount with colossal upside.
While the risks remain, remember that markets always look forward. NVIDIA is one of the best stocks to buy now because there is a genuine chance it’s at or around a bottom, even if the reality on the ground and recession risks tell a different story.
NVIDIA’s Stock Slide is Pricing In a Recession and Mismatches Outstanding Sales
Usually, the chip industry goes as economic cycles go. NVIDIA’s stock has been no exception. As recession risks have mounted in 2022, the stock has lost half of its market value year-to-date.
But take a different approach when looking at NVIDIA. Many believe that NVIDIA’s plunge, for various reasons, is overblown and that it will be more resilient than its peers for various reasons.
First, NVIDIA serves cloud computing and artificial intelligence, which are more resilient tech sectors.
Second of all, NVIDIA is financially sound and well managed. Its recent earnings showed that despite headwinds, it remains a well-oiled machine with consistent demand. Consider the following:
- Revenue gained 46% during Q1.
- Its data-center unit saw 83% growth.
- Gaming revenue climbed 31%
- Professional visualization sales rose 67%.
- Gross margins were roughly 66%.
With revenue expected to see a 5-year CAGR of 31.3% and net income to grow 42.0% and average 24.1% over the next five fiscal years, its broad sell-off looks all the more puzzling.
For Once NVIDIA is Undervalued, and it Has the Margins to Prove It
As mentioned, NVIDIA has lost over half of its market value year-to-date. Its revenue growth does not match up with this type of decline. Yet as NVIDIA continues hovering around year-to-date lows, even more metrics appear to show that this Company offers deep value (for once).
First of all, NVIDIA is a long-term outperformer that trades 58.06% below its record highs, with an almost-oversold RSI and a 0.51 PEG ratio.
Second, it’s trading at this value despite having a 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
This STRONG BUY Has Been Clobbered…But the 80+%, maybe 175+% of Upside Tells a Different Story
Like Home Depot, NVIDIA is a STRONG BUY according to TipRanks. That’s because out of 30 Wall Street analysts offering 12-month price targets for NVIDIA in the last 3 months, 26 rate is a BUY compared to 4 a HOLD and 0 a SELL.
That alone should make it one of the best stocks to buy now.
NVIDIA currently has a street-high price target of $400.00, low of $165.00, and average of $266.00 which represents an 83.16% upside from July 1, 2022’s $145.23 close.
An 83.16% average upside is impressive as is a worst case scenario of a 13.61% upside from its low target. But based on its potential 175.43% upside from its street-high target, the risk-reward ratio to snatch this stock at this level is too enticing to ignore.
Moreover, several analysts since May have given the NVIDIA stock price targets well above its consensus average, including
- Truist Financial’s $283.00 price target
- Citigroup’s $315.00 price target
- Mizuho’s $290.00 price target
- JPMorgan Chase & Co.’s $285.00 price target
- UBS Group’s $280.00 price target
- Oppenheimer’s $300.00 price target
Additionally, in a note, last month, Bank of America named NVIDIA one of its top stock picks after its price fell even more. The bank called its valuation “compelling” and its operations “resilient” as it serves industries such as cloud computing, A.I., industrial products, EVs, and driverless technology.
So perhaps we’re not the only ones calling NVIDIA one of the best stocks to buy now.
NVDA’s year-to-date low and high are $143.92 and $313.30, respectively.
But, keep this in mind too. Nvidia touched its low during the previous market session (July 1, 2022). We’re talking about bottom-feeding right now in the most straightforward way possible.
