2 cheap stocks to buy in May for long-term growth
Today’s episode of Full Court Finance at Zacks dives into the broader market after stocks suffered a brutal April. The selloff has pushed the S&P 500 and Nasdaq close to new 52-week lows, while some high-growth names and established companies are trading below their pre-covid highs. The episode then focuses on two retail stocks, Yeti (YETI) and Sonos (SONO), which are starting to look pretty cheap and might be worth buying.
Bear markets quickly crushed the rebound last Thursday to end April on a dismal note. The S&P 500 fell nearly 8% last month, for its worst performance since the initial covid selloff in March 2020. Meanwhile, the tech-heavy Nasdaq fell more than 13%, for its most steep monthly decline since October 2008 as Wall Street recalibrates growth stocks. which are sensitive to higher interest rates.
The S&P 500 is trading 15% below its highs, the Nasdaq down about 24%. The selling wave has seen even the biggest names on the planet like Amazon drop more than 10% in a single session. The slowdown, coupled with soaring prices and rising interest rates, caused many investors to sell or pull out. The massive lockdowns in China and the ongoing Russian invasion of Ukraine only add to the fears and unknowns.
Despite all the legitimate reasons for caution and selling, Wall Street needs to make money work to beat inflation to 8.5%. Yet even with interest rates rising, the US 10-year Treasury is only at 3% (its highest levels since 2018). This could encourage investors to seek equity returns above inflation.
Against this backdrop, some investors with a long-term outlook might want to start taking a look at starting slow positions in strong stocks with good prospects that are trading at discounted prices and valuations. The first stock available today is Yeti Holdings, Inc. YETI ahead of its first-quarter fiscal 2022 financial results on Wednesday, May 11.
Yeti’s stock has been hit hard by supply chain disruptions and rising costs that are now squeezing profit margins. Still, the high-end cooler company and lens maker is expected to grow double-digit revenue and earnings in 2022 and 2023. Yeti is trading 50% below its highs and trading at its lowest forward earnings multiple since the covid clearance sale.
The other stock we’re looking at today is the high-end speaker maker Sonos SOUND. The stock is trading at less than $25 per share and its Zacks consensus price target represents an 85% upside from Monday’s levels. Sonos, which also reports May 11, has expanded its product line and customer base in competition with Amazon, Apple and others.
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