Three Stocks to Watch for the Week of August 16th, 2021

The Dow and the S&P 500 logged a string of record-breaking highs and rounded out last week with muted gains while the Q2 earnings season continued its robust performance.  The blue-chip Dow edged 0.8% higher, and the S&P 500 added 0.7% while the tech-heavy Nasdaq underperformed, down 0.1% for the week. 

A surprisingly sharp drop in consumer sentiment led to a pullback on Friday.  The University of Michigan’s consumer sentiment index tumbled to 70.2 in its preliminary August reading, more than 13% lower than July’s result of 81.2 and below the April 2020 pandemic era low of 71.8.

The university’s report said, “Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end.”

This week, several retail heavyweights will put the finishing touches on the Q2 earnings season.  We’ll hear from notables such as Walmart (WMT) and Home Depot (HD), as well as Target Corp. (TGT).  Meanwhile, we’ll get a look at key economic data that could potentially move markets. Namely, the July retail sales report will provide more insight into the recovering economy.  

Our team has a few recommendations on stocks to watch in the week to come with current conditions in mind.  Continue reading to find out why these stocks stand out among their peers.  

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Texas-based Azz Inc. (AZZ) is a global provider of welding solutions, metal coating services, specialty electrical equipment, and highly engineered services to the markets of power generation, transmission, and distribution.  The company provides crucial services in protecting metal and electrical systems used to build and enhance the world’s infrastructure.  

The company’s metal coatings division is a leading provider of metal finishing solutions for corrosion protection to the North American steel fabrication industry which means it will likely be a beneficiary of fresh infrastructure spending here in the U.S.  Meanwhile, their energy division provides safe transmission of power from the source to end customer and automated weld overlay solutions to critical infrastructure in the energy markets worldwide.  

AZZ is expanding operations through acquisitions.  Earlier this year, the company announced the acquisition of all the assets of Acme Galvanizing, Inc., which was a privately held hot-dip galvanizing and zinc electroplating company.  

The share price of AZZ has risen nearly 15% year to date, and the company’s expected earnings growth rate for the current year is 44.1%.  The stock is the recipient of the highly regarded Zacks Rank #1, and the Zacks Consensus Estimate for its current-year earnings has increased 13% over the past two months.

A price to sales ratio of just 1.61 combined with a trailing twelve-month price to earnings ratio of 19.3 indicates that AZZ is a value compared to its peers in the manufacturing industry where the average price to sales ratio is 2.76 the average price to earnings ratio is 26.23.  The stock also comes along with a 1.27% dividend yield that has been consistent over the past three years. A median 12-month price target from the analysts covering the stock represents a 14.45% increase from its current price. 

 

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Specialty finance company Oaktree Specialty Lending Corporation (OCSL) provides customized, one-stop credit solutions to companies with limited access to public or syndicated capital markets.  OCSL generates income and capital appreciation by providing co companies with flexible and innovative financing solutions, including first and second lien loans and preferred equity.  

The company has been named a Top 10 dividend-paying financial stock by Dividend Channel in its most recent “DividendRank” report.  The report noted that OCSL displayed both attractive valuation metrics and strong profitability metrics.  The report cited OCSL’s low price to book ratio of 1.0 and their high annual dividend yield of 8.02%. By comparison, the average stock in Dividend Channels coverage universe yields 3.2% and trades at a price-to-book ratio of 2.7.  The report also cited the strong quarterly dividend history at Oaktree and the favorable long-term multi-year growth rates in key fundamental data points.  

OCSL share price has climbed more than 13% over the past 3 months, which reflects the continued willingness to pay more for the potential upside.  Of 7 analysts offering recommendations for OCSL, all 7 rate the stock a Buy.  There are no Sell or Hold ratings for the stock.  A median 12-month price target of $7.75 represents a 7.19% increase from the current price.   

Fortune 500 company Fiserv (FISV) provides digital commerce services, fraud protection, digital banking, credit card processing, electronic billing products, and other products and services.  In other words, it’s a one-stop-shop for all that a financial institution or insurance company needs to manage the flow of money coming in and going out of their business.  The fintech company serves businesses, banks, credit unions, other financial institutions, merchants, and corporate clients across the globe. 

The company recently reported second-quarter earnings on July 27th, results showing 43% second-quarter growth in revenue year-over-year for the company’s merchant-acceptance unit. That performance comes on top of a near-doubling in payment volume for the company’s key Clover point-of-sale technology.

For the April-through-June quarter, the Brookfield, Wis.-based processing giant “saw a strong recovery in the United States with uneven recovery around the world,” pronounced chief executive Frank Bisignano during a call with equity analysts.

In the key independent software vendor market, where technology companies embed payments capability into releases they’re preparing for vertical markets, Fiserv saw a 122% growth in volume for the quarter compared to the prior year.  That was driven by 53 new ISV signings, bringing to 95 the number signed for the year so far, Bisignano said.  As with many operating statistics, the company did not release absolute figures.

Fiserv’s progress wasn’t confined to small merchants.  Carat, a unit the company launched in November to sell coordinated digital payments and related commerce services to large companies looking to serve Covid-wary consumers, racked up gains in the quarter, as well.  Bisignano said that ten of the country’s largest convenience-store chains are now using Carat, along with nine of the 10 biggest grocers.  All told, the unit has generated $2.5 billion in payment volume so far this year.

In total, the merchant-acceptance division recorded $1.67 billion in revenue for the quarter, bringing its first-half revenue to $3.06 billion, up 22% over the first half of 2020.  That was enough to overtake Fiserv’s payments and network segment, which logged $1.43 billion in revenue for the second period, up 7%.

As far as guidance from the company is concerned, Fiserv raised the lower end of its 2021 outlook and now expects revenue growth of 10% to 12%.   Adjusted earnings per share are now anticipated in the range of $5.50 to $5.60 compared with the prior guidance of $5.35 and $5.50.  This positive outlook adjustment is a solid indicator that the company is seeing greater than expected client base and demand growth.  

Wall Street seems optimistic about FISV too.  Of 32 polled analysts, 27 rate the stock a Buy, and 5 rate it a Hold.  There are no Sell ratings for FISV.  A median price target of $141.50 represents a 27.82 increase from its current level. 

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