With the new inflation numbers coming in under expectations, that’s a bullish sign that the Federal Reserve won’t be adding more hikes to interest rates, at least for now.
Slower inflation is a good sign since it means that the transition from a cool economy to a hot one isn’t happening too quickly. It’s transitioning over time, and that’s bullish for consumer stocks since a fast rise in prices means consumers will slow spending or choose value brands over name brands.
As 2018 started, it looked like the economy was heading down the first drop on a roller coaster, gather enormous speed from nearly a dead start. That hurt some stocks as the markets worried that inflation would hit hard and fast, hurting the consumer’s spending power in the process.
Now that this scenario isn’t coming to pass, I wanted to highlight seven consumer goods stocks that will rise again.
Top 10 Small Cap Stocks To Watch Right Now: Activision Blizzard, Inc(ATVI)
ATVI is the ticker symbol. Activision Blizzard is, for me anyway, the worldwide leader. There’s some good competition [Electronic Arts and others] in interactive entertainment.
Now, the company’s not as dominant in China as some very large Chinese companies, so you and I could debate who the real worldwide leader is. The good news is with a stock like NetEase, which is a big Chinese video game maker and one of those conglomerates, we own that one, too. I like to think that we’ve got this industry cornered, but I love the future of interactive entertainment, whether it’s playing digital card games like Hearthstone, which I do almost every day, even though it’s in its fourth or fifth year. I love Hearthstone to great games like Overwatch, which has been a huge hit and is the big e-sport of choice with clubs these days.
You might be following the The Overwatch League, some of you. Cities in the U.S. and abroad paying tens of millions of dollars to have the rights to have a team that’s competing in Overwatch. So, e-sports is a big part of Activision Blizzard. Starcraft. Warcraft. World of Warcraft. The list goes on of this company’s properties. Love Activision Blizzard. Bobby Kotick, the CEO. I’ve talked about him before on this show. He’s a brilliant asset allocator. He’s not even a video gamer.
He also, by the way, had a cameo appearance in one of my favorite films, Moneyball, when Bill James’s great story and Michael Lewis’s non-fiction book was turned into a movie with Brad Pitt. You’ll see Bobby Kotick playing the owner of the Oakland A’s in an early scene in that movie. A little trivia tip for Activision Blizzard fans.
Top 10 Small Cap Stocks To Watch Right Now: Centene Corporation(CNC)
Centene Corp (NYSE:CNC) operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States.
The company’s total revenue stands at $48.3 billion as of its latest fiscal year. This is nearly 5x higher than the $8.1 billion achieved five years prior.
Going forward, analysts are forecasting that Centene’s total revenue will reach $87.9 billion by fiscal year 2022 representing a five-year CAGR of 12.7%.
Shares of the company are trading 54.2% higher year over year. But the stock price could end up trading another 31.6% higher in 2018 based on Centene’s future cash flow projections.
It’s worth noting that highly followed portfolio manager David Tepper currently holds a position in Centene worth $76.5 million. Tepper, founder and portfolio manager at Appaloosa Management, is widely known for having inspired what’s been dubbed the Tepper Rally of 2010.
Top 10 Small Cap Stocks To Watch Right Now: ARMO BioSciences, Inc.(ARMO)
ARMO BioSciences stock skyrocketed 78% this week. The biotech announced on Thursday that it was being acquired by Eli Lilly (NYSE:LLY) for $1.6 billion. What’s especially notable about this acquisition is that ARMO conducted its initial public offering (IPO) less than four months ago.
What made ARMO so attractive to Lilly? The small biotech’s lead product candidate, AM0010, also known as pegilodecakin. AM0010 a long-acting form of recombinant human Interleukin 10 (IL-10) that stimulates white blood cells called CD8+ T cells. These T cells recognize and kill cancer cells. The drug is currently being evaluated in a phase 3 study for treating pancreatic cancer and in earlier-stage studies targeting other types of cancer.
Lilly saw AM0010 as a great addition to its current oncology lineup, which includes Cyramza, Verzenio, and three pipeline candidates in phase 2 clinical studies. The acquisition is expected to close by the end of the second quarter.
Top 10 Small Cap Stocks To Watch Right Now: Adobe Systems Incorporated(ADBE)
Adobe has been selling software used to create digital content for nearly four decades, so you’d be forgiven for assuming that this company has morphed into a slow-moving giant. Amazingly, that’s not the case at all. Adobe posted revenue and adjusted EPS growth of 24% and 65%, respectively, last quarter. Those spectacular results weren’t a one-off fluke, either; the company has been a growing like a weed ever since CEO Shantanu Narayen made the bold decision a few years back to transition to a cloud-based business model.
While the transition was met with harsh criticism when it was announced it has paid off brilliantly for long-term investors. Adobe’s stock has steadily marched higher since 2013, including a 70% jump in 2017 alone. All told, shareholders have enjoyed a 417% jump in the last five years.
But can the good times continue? I believe that the answer is yes. Adobe’s software lineup is led by design necessities like Photoshop, Illustrator, and InDesign, and their continued popularity drove the company’s Digital Media segment to 28% growth in the first quarter. Even better, these products are typically sold through the cloud on a subscription basis, which means consistent and steady income. Adobe makes 86% of its revenue through subscriptions (a figure that’s still growing), and subscription-based revenue increased 30% in the first quarter. Selling products this way also gives Adobe a better look into how its customers are using the software, which means a better experience over time. Meanwhile, the company is also plowing its R&D dollars to build out its presence in fast-growing areas such as virtual reality and digital advertising. When combined, market watchers believe that sustained double-digit revenue and profit growth is achievable. I happily concur with that assessment.
The only downside here is that the tremendous run has pushed the company’s valuation up so high that shares currently trade for more than 30 times next year’s earnings estimates. While that might seem like too high of a price to pay I don’t think its outrageous given the company’s projected profit growth rate of 26% over the next five years. Mix in a cash-heavy balance sheet and a dominant competitive position and I think that Adobe is a fantastic business that is currently trading at a fair price. If you haven’t bought shares yet, consider it today.
Top 10 Small Cap Stocks To Watch Right Now: Best Buy Co., Inc.(BBY)
Shares of Best Buy are up 55% over the last year and have also climbed 7.4% in the last four weeks. The big-box electronics retailer is expected to see its Q1 revenues pop by 2.8% to hit $8.77 billion, based on our Zacks Consensus Estimates. Meanwhile, Best Buy’s earnings are projected to surge by 25% to touch $0.75 per share.
Best Buy’s Most Accurate Estimate—the representation of the most recent analyst sentiment—calls for quarterly earnings of $0.76 per share, which is 1 cent better than our current consensus estimate. The company is also currently a Zacks Rank #2 (Buy) and sports an Earnings ESP of 2.01%. Therefore, investors can consider BBY as a stock that could top quarterly earnings estimates when it reports its Q1 financial results before the market opens on Thursday, May 24.