Key points
- The S&P 500 Index is nearing its top, with market-leading trades crowded, values high and dividend yields low.
- Investors looking to get ahead of the next recession should look to small- and mid-cap companies, where value and yield are found.
- These stocks offer value and yield, but also have analyst support and catalysts for higher stock prices in their outlook.
- 5 stocks we prefer to Whirlpool
Concentration and the increasingly weak outlook for earnings growth (outside of technology) in 2024 have S&P500 NYSEARCA: SPY ready for a correction. It may not happen anytime soon, but the signs continue to grow, with investors flocking to market leaders like NVIDIA NASDAQ:NVDA, Advanced microdevices NASDAQ:AMD, Amazon NASDAQ: AMZNAND Meta platforms NASDAQ: META, and expectations of rate cuts are receding. Proactive investors should look to small- and mid-cap companies, where value and yield are abundant.
The rate cuts are important because they will signal a turning point in the economy that will precede improving earnings power for the S&P 500. As it stands, the market expects the first cuts to come by June, and it could be severely disappointed. The latest inflation data shows that the CPI and PPI are accelerating compared to last year and are unable to allow FOMC members any room to cut. In this scenario, hopes and dreams could push the S&P 500, but the top will likely be reached before the summer. When that happens, the entire market’s shift in focus away from mega-cap tech will push the S&P 500 significantly lower.
Blossoming brands will flourish in 2024
Blooming brands NASDAQ: BLMN it’s interesting because it’s relative to the S&P 500 and its peers. Trading at less than 12 times earnings, it is deeply valued compared to Darden Restaurants and Texas Roadhouse, its closest competitors. Drivers in 2024 include improving financials, growth and activist investor engagement. Starboard Capital is known for its ability to unlock shareholder value in restaurants and is expected to do the same for BLMN shareholders. Plans for 2024 include closing several underperforming locations and moving capital to newer locations.
Analyst sentiment lags this market, but a change was observed following the fourth quarter release. Several analysts have made upward revisions to price targets, putting a lid on the market. Among the revisions is the new high target of $32, which is 10% higher than the current stock. As for the dividend, BLMN shares pay more than 3.25% to $29 and capital returns are supported by share buybacks. The company announced a $350 million reauthorization in the first quarter, equivalent to 14% of today’s market capitalization.
Kontoor Brands is a good fit for 2024
Kontoor brands New York Stock Exchange: KTB operates in two segments, Wrangler and Lee, making it a pure play on affordable, high-quality apparel. This year the company is returning to growth and expanding its margin, attracting the attention of analysts. Analysts rate this stock a Moderate Buy and are raising their price targets this year.
The consensus assumes a 15% upside, and the lower end of the range assumes the stock has deep value: it is higher than current stock prices and has recently risen. Kontoor Brands trades at reasonable earnings of 13X and pays 3.3%. Its return is reliable at 45% of profits. Dividend safety was highlighted recently when the company increased its repurchase authorization by $300 million, or about 9% of the current market capitalization.
Hasbro has what it takes to attract investors
Hasbro’s NASDAQ: HA The outlook for 2024 is mixed, but includes improved margins and solid dividend coverage, which matter today. The margin is expected to widen and provide sufficient cash flow to cover the substantial dividend. Trading at 16X earnings and long-term lows, the yield is close to 5.25%, exceeding the overall market average. Analyst sentiment has worsened over the past year, but the group is holding and sees limits to the downside. The lower end of the range is $52, just below the current stock; the consensus assumes an increase of 25%.
Nexstar Media Group will benefit from the election cycle
Nextstar Media Group NASDAQ:NXST he is a broadcast media specialist who is expected to benefit from the election cycle. Its channels and programming are ideally located for election cycle ad spending, which is expected to be substantial. Analysts rate this stock with a 4% yield as a Moderate Buy and see it advancing 25% at the midpoint.
Whirlpool is at its lowest point, with growth and margin pushing it higher
Hydromassage NYSE:WHR Shares are trading near long-term lows and lower prices, with a return to growth and margin expansion expected this year. The company’s earnings forecast calls for a yield of 6.45% or 43% of earnings, and the distribution may be increased at the end of the year. Trading at 8X earnings, the stock is valued relative to its historical standards and is undervalued by about 30%. Analysts rate the stock Hold but have raised their price targets. According to forecasts, the stock will increase by 15%; the most recent target is $140 or an upside of about 30%.
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