The global economy suffered a major blow from the COVID-19 pandemic, but it is now in the recovery stage. Governmental fiscal stimulus is driving consumer spending, restaurants and hotel chains are reopening, and manufacturing activities are on the rise.
Consequently, investors are rotating away from pricey pandemic winners to undervalued stocks from industries that are positioned to benefit from the economic recovery. These stocks are known as cyclical stocks and they typically perform well during economic growth. Investors’ rotation to value stocks is evidenced by the SPDR Portfolio S&P 500 Value ETF’s (SPYV) 13.3% returns year-to-date versus the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 8.9% returns.
As such, we think it’s wise now to bet on undervalued cyclical stocks Kingfisher plc (KGFHY), Lumber Liquidators Holdings, Inc. (LL) and Haverty Furniture Companies, Inc. (HVT) given their strong growth prospects.
Kingfisher plc (KGFHY)
Headquartered in London, U.K., KGFHY is a home improvement company with 1,380 stores across Europe. The company operates under the brand names B&Q, Castorama, Brico Depot, Screwfix, TradePoint, and Koctas. It offers its products and services via its stores and through its e-commerce channels.
On March 15, KGFHY’s Screwfix announced that it plans to open more than 50 stores this year. KGFHY signed a franchise agreement with the Al-Futtaim Group to expand B&Q in the Middle East. Also, in February, the company’s Castorama Poland opened its 84th, store in the city of Starogard Gdański in northern Poland. So, the company is widening its market reach.
And last November, KGFHY completed the acquisition of NeedHelp, a B2B2C online platform that connects home-improvement customers with professionals and skilled tradespeople. This shows that KGFHY is building a mobile-first and service-orientated customer experience in keeping with its ‘Powered by Kingfisher’ strategy.
The company’s sales increased 7.2% year-over-year to £12.34 billion in its fiscal year ended January 31, 2021. Its operating profit grew 223.7% year-over-year to £916 million, while its statutory pre-tax profit increased 634% year-over-year to £756 million. Its free cash flow came in at £938 million, up 391.1% year-over-year. And KGFHY’s adjusted EPS also increased 50.3% year-over-year to 28.7p.
In terms of forward enterprise value/sales ratio, KGFHY’s 0.75x is 56.1% lower than the industry average 1.71x. In terms of forward price/sales ratio, the stock’s 0.64x is 52.9% lower than the industry average of 1.36x.
The stock has gained 181.8% over the past year and closed yesterday’s trading session at $10.13.
KGFHY’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Value and Momentum, and a B grade for Growth, Stability, and Quality. Within the A-rated Home Improvement & Goods industry, KGFHY is ranked #1 of 64 stocks. To see all KGFHY’s ratings, click here.
Lumber Liquidators Holdings, Inc. (LL)
Founded in 1994, LL is a multi-channel specialty retailer of hard-surface flooring, enhancements and accessories. The company’s offerings include hardwood species, engineered hardwood, laminate, resilient vinyl, water-resistant vinyl plank, and bamboo and cork products, among others. It serves primarily homeowners, or contractors on behalf of homeowners, and provides in-home delivery and installation services.
LL’s net sales increased 11.1% year-over-year to $304.21 million in the fourth quarter, ended December 31, 2020. Its gross profit increased 5.4% year-over-year to $117.92 million and its adjusted earnings came in at $31.38 million, which represents a 91% year-over-year increase. The company’s adjusted EPS came in at $1.06, up 86% year-over-year.
In terms of forward P/S ratio, LL’s 0.64x is 52.9% lower than the industry average of 1.36x. The stock’s forward enterprise value/sales ratio of 0.69x is 59.6% lower than the industry average 1.71x.
For the quarter ending June 30, 2021, analysts expect LL’s EPS and revenue to increase 160% and 35.6%, respectively, year-over-year. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 387.7% over the past year and closed yesterday’s trading session at $26.63.
LL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade for Value and Momentum, and B grade for Sentiment and Quality.
We have also graded LL for Growth and Stability. Click here to access all of LL’s ratings. LL is ranked #16 in the same industry.
Haverty Furniture Companies, Inc. (HVT)
Based in Atlanta, Georgia, HVT is a home furnishing company with more than 100 showrooms across 16 states. The company offers custom upholstery products and eclectic looks, furniture merchandise, and mattresses under its brand names Havertys, Sealy, Tempur-Pedic, Serta and Skye.
On March 25, 2021, the company paid a dividend on the outstanding shares of the two classes of its $1 par value common stock at a rate of $0.22 per share on the common stock and $0.20 per share on the Class A common stock. HVT has paid a cash dividend each year since 1935. HVT’s total revenues increased 12.9% year-over-year to $241.34 million in the fourth quarter, ended December 31, 2020. Its gross profit for the quarter came in at $137.62 million, which represents a 18.8% year-over-year rise. Its net income also increased 316.9% year-over-year to $25.43 million. The company’s non-GAAP EPS increased 242.5% year-over-year to $1.37.
In terms of forward enterprise value/sales ratio, HVT’s 0.89x is 47.95% lower than the industry average 1.71x. In terms of forward price/sales ratio, the stock’s 0.85x is 60% lower than the industry average of 1.36x.
For the quarter ended March 30, 2021, analysts expect HVT’s EPS to be $0.41, which represents a 355.6% year-over-year increase. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The company’s revenue is expected to increase 79.6% year-over-year to $197.51 million for the quarter ending June 30, 2021. The stock has gained 225.31% over the past year and closed yesterday’s trading session at $39.98.
It’s no surprise that HVT has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The stock also has an A grade for Growth, Value, Quality, and Momentum.
Click here to see HVT’s ratings for Sentiment and Stability as well. HVT is ranked #2 in the same industry.
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KGFHY shares were trading at $10.07 per share on Tuesday afternoon, down $0.06 (-0.59%). Year-to-date, KGFHY has gained 37.01%, versus a 10.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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