📈 COVID Recovery 2.0 Stocks

POWERED BY DULUTH PACK

THE STREET SAYS

Well, last week we asked the question: When the Consumer Price Index is released on Thursday, do you think the annual increase will be higher than December's reading of 7%?

70% of you said YES, 30% said NO. Of course, those who said "YES" are correct. The consumer price index for all items rose 0.6% in January, driving up annual inflation by 7.5%. As you'll see in our review below, rising prices are unnerving both consumers and investors. Wall Street is watching, with little certainty, how the Fed will react.

This week we want to get your thoughts about what's unfolding overseas. US Secretary of State Antony Blinken said Friday that a Russian invasion of Ukraine "could begin at any time," with some reports (that are strangely specific) indicating an invasion could happen Wednesday. 

Vote: Do you think Russia will invade Ukraine this week? Click here to share your thoughts.

REVIEW

US stocks fell Friday as investors continued to sift through the previous day’s inflation data that showed prices rising at their fastest rate since 1982. There were jitters surrounding increasing tension between Russia and Ukraine as well. The market remains unsure as to how the Fed will react to rampant inflation, with various reports indicating different possibilities when it comes to impending interest-rate hikes. St. Louis Fed President James Bullard caught investors’ attention on Thursday when he expressed an openness to a full-point increase by July. Traders seem to be pivoting away from equities as the 10-year US Treasury bill continued to trade above 2% throughout Friday’s session. Many analysts say markets could remain volatile until inflation begins to ease. In company-specific news, shares of Expedia rose after beating analyst estimates on earnings per share. Yelp’s stock popped as well after posting an upbeat earnings report. Dominion Energy fell short of analyst expectations but saw share prices rise after it reported increased revenue and earnings for its most recent quarter. Web-hosting company GoDaddy also beat earnings estimates and finished in the green. On the downside, Affirm Holdings inadvertently released its earnings report early and saw share prices fall after showing lower-than-expected revenue. In economic data, the University of Michigan’s preliminary consumer sentiment for February came in at 61.7, which is down from a 67.2 reading the prior month. It also fell short of expectations. The university’s expectations for inflation over the next 12 months also checked in at the highest level since the summer of 2008. For the week as a whole, the Dow Jones Industrial Average fell 1%, the S&P 500 dropped 1.8%, and the Nasdaq Composite tumbled 2.2 %.

PREVIEW

The January Producer Price Index is due Tuesday. This measures wholesale prices for a range of goods and services. December’s number rose by 0.2%, falling short of analyst expectations. Throughout 2021 the index jumped 9.7%, marking the highest increase on record dating back to 2010. The Empire State Manufacturing index is also set for release, which tracks general business conditions in the New York region.

Wednesday, be on the lookout for January retail sales. December’s figure showed a 1.9% drop, which analysts attributed to higher prices. Specifically, decreased spending was observed within online shopping and at bars and restaurants. The Federal Open Market Committee’s minutes will also be shared, dating back to its two-day meeting in late January. This will provide a more detailed look into how the central bank intends to approach runaway inflation, which is rising at its highest rate in 40 years. January’s industrial production, import price index, and capacity utilization are also due. December’s business inventories will be published, as well as February’s NAHB homebuilder’s index.

Thursday, the US Census Bureau will report on January’s housing starts. December’s number edged slightly above forecasts, rising 1.4% from November. Analysts argue this shows the housing market remains strong although prices and interest rates are on the rise. January’s seasonally adjusted building permits are also set for release, giving further insight into the housing market. December’s number jumped 9.1%. Jobless claims will also be published, as well as the Philadelphia Fed’s manufacturing index.

Watch for even more housing data on Friday, with January’s existing home sales due. December’s number was the lowest in four months, and represented a 4.6% decline. Analysts say supply is exceptionally tight — housing inventory checked in at 910,000, which is the lowest number since 1999. January’s leading economic indicators are also set for release.

E-commerce, retail, and travel companies will feature in this week’s earnings calls. On Monday, Avis Budget Group (CAR) will hand in its report for the most recent quarter, with analysts predicting sales of $2.4 billion. Airbnb (ABNB) will post its earnings report for Q4 2021 on Tuesday. Analysts are expecting the online lodging marketplace to report increased profits for the quarter. Wednesday, Shopify (SHOP) will report earnings. The Ottawa-based software maker supports online retailers and soared to new heights during the pandemic. Shopify has seen its share price fall from highs recorded last November amid the broader tech sector selloff. On Thursday, Walmart (WMT) will report its Q4 2021 results. Analysts are predicting increased earnings on lower revenues. On Friday, sports gambling app DraftKings (DKNG) rounds out the week in earnings. The NFL has predicted its partnerships with sports betting companies will earn a combined $1 billion per year by 2030.

POWERED BY DULUTH PACK

Made in the USA Since 1882: A Legacy and History You Can Depend On

This backpack is so well made, you’ll hand it down to the next generation. Made in the USA, Duluth backpacks feature cotton-webbing shoulder straps, high-quality zippers, and a double canvas bottom that resists wear and tear.

Guaranteed for life, these cotton canvas backpacks come in both medium and large models for whatever life throws at them. They are ideal for everyday use as well as for travel, hiking, and school. Decades into your ownership of this backpack, you’ll be amazed at how well it holds up. The zippers will work flawlessly. The leather will show no cracking or hardening.

Simply put—these are top-level packs reflecting the peak of American craftsmanship. In fact, a good backpack is one of the best purchases you’ll ever make.

The next time you head to work, into nature, or out on the road—grab your Duluth Pack. Purchase yours by clicking here now.

Can Boston Beer Recover From the Hard Seltzer Fizzle?

Boston Beer in Turnaround After Hard Seltzer Bust

Hard seltzer has lost its luster with alcohol-drinking consumers, putting pressure on Boston Beer (SAM). The maker of Truly, the No. 2 hard seltzer brand in the US, has seen its stock ride the craze up and eventually down as demand waned. At the start of 2020, Boston Beer traded around $300 per share. It surged to over $1,300 per share this past spring. It’s down about 70% since then. 

Wall Street didn’t see the hard seltzer bust coming. After all, during the pandemic consumers couldn’t get enough of White Claw, Truly, and other alcohol-infused seltzers. With restaurants and bars reopening, demand fell, leaving distributors and retailers with excess inventory they couldn’t unload. 

Remember when Russia and Saudi Arabia decided to keep pumping oil in March 2020 even though nobody was driving or flying because of global lockdowns? Crude futures traded in negative territory because there was an oversupply? In a roundabout way that’s kind of what’s happening to the seltzer market at the moment. 

Boston Beer’s Still Growing 

Boston Beer’s stock has taken a beating as a result of the bloodletting in the hard seltzer category, but there’s reason to be optimistic. The company tends to be a trailblazer in the markets it enters, which has benefited the company over the years. Samuel Adams Boston Lager sparked the craft beer craze, Angry Orchard became a leading hard cider brand, and Truly is in second place in the hard seltzer market. 

Revenue at Boston Beer has grown at a compound annual rate of 12.5% over the last five years. Earnings per share have grown 16.5% in the same period. With its stock in the doldrums, some investors see Boston Beer’s stock as a buying opportunity.

Truly Holds Its Position

It doesn’t hurt that in spite of the malaise, Truly is doing better than the overall category. Last year the hard seltzer market grew 16%. Truly posted growth of around 32%. Still, it was much lower than expectations, given the category lodged 226% growth in 2019 and 165% growth in 2020. Over the next five years, Boston Beer expects hard seltzer to account for 15% to 20% of beer dollars spent. That’s up from 11% in the first three quarters of last year. 

Truly is poised to continue to gain market share despite the crowded playing field, which bodes well for Boston Beer’s prospects. Hard seltzer may no longer be the number one staple at BBQs and pool parties, but there’s still growth left in the category.

This Time Around Pandemic Recovery Plays Are Different

Pandemic Recovery Stocks in 2022 

The COVID-19 recovery 2.0 is coming but the same stocks that benefited the last time around may not pop during this next chapter. The last time pandemic cases plateaued and then slowed (before Delta and Omicron surged) consumers poured money into travel, entertainment, and other industries where pent-up demand was driving growth. For good reason. The average American was flush with cash and ready to spend. 

This time is different. There are no federal government stimulus checks juicing consumers’ bank accounts. People aren’t saving money staying home. Pandemic restrictions haven’t been as severe, limiting any positive effects from pent-up demand. Then there’s the Federal Reserve, which plans to raise interest rates five times this year. Efforts to cool the economy by the Fed may end up hurting traditional COVID-19 recovery plays.

Flight to Quality to Play the Pandemic Recovery 

With that in mind, there’s been a flight to quality as investors look for new COVID-19 recovery winners. It's those companies that have predictable returns, strong cash flow, and benefit in a rising rate environment that are drawing investor interest. 

Take Booking (BKNG), the owner of Priceline and OpenTable for starters. Spending on travel may not skyrocket like last time but consumers still want to vacation. Earnings per share at Booking are forecast to double year-over-year and the company is on track to post $5.1 billion in free cash flow in the calendar year 2022. 

Intuitive Surgical (ISRG) is also on some investors' radars. The company should see business pick up as elective surgeries resume amid declining COVID-19 cases. The company’s sales have grown 13% per year for over a decade and more revenue is expected in the years to come. With the stock off 20% this year, bargain hunters are circling. 

McDonald’s is a Cash Machine

McDonald’s (MCD) is another stock that’s poised to benefit as Omicron cases continue to fade. Even if the economy slows because of Fed actions, the fast-food chain will likely be a winner. For years, earnings at McDonald’s have grown about 10% annually. In 2022, Wall Street is projecting 9.5% growth. It also has a dividend that has increased about 7% in the last ten years and is forecast to generate $7.7 billion in free cash flow in 2022 alone. The stock isn’t cheap, but quality never is. 

Without government intervention and with limited lockdown restrictions, investors need to think outside the box when choosing COVID-19 recovery plays this time around. Instead of the beaten and battered, quality is in vogue in a rising rate environment. 

POWERED BY DULUTH PACK

Made in the USA Since 1882: A Legacy and History You Can Depend On

This backpack is so well made, you’ll hand it down to the next generation. Made in the USA, Duluth backpacks feature cotton-webbing shoulder straps, high-quality zippers, and a double canvas bottom that resists wear and tear.

Guaranteed for life, these cotton canvas backpacks come in both medium and large models for whatever life throws at them. They are ideal for everyday use as well as for travel, hiking, and school. Decades into your ownership of this backpack, you’ll be amazed at how well it holds up. The zippers will work flawlessly. The leather will show no cracking or hardening.

Simply put—these are top-level packs reflecting the peak of American craftsmanship. In fact, a good backpack is one of the best purchases you’ll ever make.

The next time you head to work, into nature, or out on the road—grab your Duluth Pack. Purchase yours by clicking here now.

An Arkansas Bank Propping Up The Manhattan Real Estate Market

Big Banks Take a Back Seat to Bank OZK 

Forget Citigroup (C) and Wells Fargo (WFC). When it comes to helping property developers in New York City, Bank OZK (OZK)—hailing from Little Rock, Arkansas—is a major player. The company has been among the most aggressive lenders to developers erecting skyscrapers across Manhattan’s skyline. On a recent conference call to discuss quarterly earnings, CEO George Gleason said Bank OZK could issue one of the largest construction mortgages later this year. 

Bank OZK is already close to completing a deal to lend developer Rabina $410 million to construct an office and luxury residential tower on Fifth Avenue in Manhattan. It would mark one of the biggest loans the bank has ever issued.

Regional Banks Filling a Void

Bank OZK is not alone. It is one of the regional banks and investors pouring money into the New York City real estate market. In the fourth quarter of 2021, there were close to 32 million square feet of proposed construction. That is the most for a three-month period since 2014. 

The players, like Bank OZK and other mid-sized banks, had less construction debt than their larger counterparts a few years ago. Now they hold much more and are fueling the boom in commercial construction. Centennial Bank, Pacific Western Bank, and Bank of Commerce are other active lenders. 

These banks are stepping up where the bigger ones won’t. Risk-averse legacy institutions are staying away from development loans because projects can take years and don’t generate any income until they are complete. 2008 wasn’t that long ago. 

Bank OZK Has Default Risk

Despite that risk, Bank OZK is all in. As of September, Bank OZK had $7.7 billion in construction and land development loans on its books. This accounts for 42% of its entire loan portfolio and is the highest percentage for a bank with over $5 billion in assets. To put it in perspective, Bank OZK has more construction debt on its balance sheet than Citibank (C). 

To maintain a competitive advantage, Bank OZK doesn’t require personal collateral and it doesn’t sell its loans to third parties. That puts it at more risk if there is a default. To mitigate some of that risk, the bank typically only funds half of the project’s cost, letting other investors cover the rest. It also only lends to developers who are experienced. As of December, 0.2% of its loans were nonperforming.

The New York City real estate market got battered during the pandemic, but it is now rebounding. While the big banks sit this one out, Bank OZK is jumping in. 

This communication from The Street Sheet is for informational purposes only. It is not intended to serve as a recommendation to buy, sell, or hold any security and is not an offer or sale of a security.  Information contained within should not be perceived as a research report and is not intended to serve as the basis for any investment decision. Any third-party views reflected herein do not reflect the opinion of The Street Sheet. All investments involve risk and the past performance of a security does not guarantee future results or returns. There is always the potential for financial loss when investing in securities or other financial products. Investors should consider their investment objectives and risks before investing.