Markets often misprice stocks. Its pricing inefficiency creates opportunities for investors who spot the discount or premium before anyone else does. In the retail sector, companies that admitted that they completely misjudged consumer demand reported weak profits.
Stocks with scores in green have strong grades.
In the quant scores above, Moderna, Target, and InMode have strong value. This suggests that investors are getting the stock at a discount.
Applied Materials has the highest quality score, according to Stock Rover research. The semiconductor giant has years of bookings. Demand shows no signs of slowing.
Investors dumped shares in companies that posted unexpectedly weak quarterly results. Now in oversold territory, value investors might consider buying them before they bounce back. Walmart and Target fit in that category. Weeks before that, Etsy posted disappointing results that scared investors. It is also a potential rebound play.
In the technology sector, Applied Materials posted good results but markets dumped the stock anyway. Coinbase, whose platform depends on a stable cryptocurrency market, lost more than half its value. The crypto platform is the biggest company in the world by market capitalization.
Unfortunately for COIN stock, shareholders are selling the stock now and asking questions later. Their loss creates a potential gain for patient investors willing to learn its business model.
In the healthcare sector, InMode and Moderna posted strong quarterly results. The good news failed to attract buyers. In a bear market, fearful investors cannot process any positive news. They are panic selling stocks. This creates deep value opportunities for the rational investor. Below are seven stocks to buy and hold now:
| AMAT | Applied Materials | $118.50 |
| COIN | Coinbase | $73.10 |
| ETSY | Etsy | $81.27 |
| INMD | InMode | $26.86 |
| MRNA | Moderna | $147.50 |
| TGT | Target | $164.63 |
| WMT | Walmart | $127.58 |
Stocks to Buy and Hold: Applied Materials (AMAT)
Applied Materials (NASDAQ:AMAT) posted revenue growing by 12% year-on-year to $6.25 billion. Its operating margin of 30.3% is healthy. Applied generated cash flow of $415 million. In the quarter, it returned $2.01 billion to shareholders through a $1.8 billion stock buyback and $211 million in dividends.
Applied managed the supply constraints well. It worked with the supply chain to improve output. Later this year, it expects growing wafer fab equipment (WFE) demand strength. The lockdown limited near-term output but was not a major obstacle. Orders are at the highest level ever and the company expects growth in its backlog.
In the next two quarters, Applied expects revenue will increase gradually. Markets are too impatient expecting unrealistic growth rates. Customer commitments are not changing. This suggests that investors may wait a while longer before the company realizes higher profits.
In the fourth quarter, the company will fulfill more orders from long-term customer contracts. It has bookings through 2024. This gives management strong visibility in demand in the next two years.
Coinbase Global (COIN)
Coinbase (NASDAQ:COIN) spooked investors when cryptocurrency prices fell in recent weeks. The Terra Luna collapse cast doubt on the health of the sector. Coinbase held none of the stablecoin. Still, customers are nervous.
Coinbase expects customer transactions will weaken as a result of the increased fear of crypto. The company is ramping up technology and development spending this year. It will spend between $4.25 billion and $5.25 billion, up from $1.41 billion in 2021.
Markets are punishing COIN stock because the company will over-pay employees, especially executive management, in stock-based compensation. Shareholders end up paying for those added costs.
Demand for crypto-related products will still rise this year. Institutional money is flooding the market. They will need a platform like Coinbase to handle the volume.
Still, risks remain. Governments may insist on decentralizing the asset. This allows governments to track and regulate transactions. It undermines the purpose of the platform.
Investors who want exposure to new products in DeFi, CeFi, NFTs, and Web3 infrastructure should consider a small position in COIN stock.
Stocks to Buy and Hold: Etsy (ETSY)
Etsy (NASDAQ:ETSY) benefited from the pandemic driving demand to unsustainable levels. In the post-pandemic world, seller volumes may weaken. Etsy is prepared for the new demand and supply equilibrium.
The company accumulated 5.5 million sellers through the pandemic years. It is investing in the business to grow. For example, the company will nurture sellers to successfully sell products on the Etsy platform.
Furthermore, as top sellers double down on selling handmade, vintage, and artisanal products, Etsy’s moat will strengthen. Still, stock markets dumped ETSY stock in the last month because e-commerce competitors posted weakening sales.
Etsy’s investments in marketing will help the company capture a bigger e-commerce market share. For example, it increased its headcount in product development. To complement the increased staff, it will run a marketing campaign in Germany and the U.K.
Investors should watch for Etsy’s gross merchandise sales figures to rise in the next several quarters. In the near term, the higher ad spending will hurt profits. But in the long term, expect Etsy to report a payback from those investments.
InMode (INMD)
InMode (NASDAQ:INMD) is a leading provider of medical technologies. Markets ignored its 31% growth in first-quarter revenues. They do not believe its proprietary surgical technology for minimally invasive treatments will grow.
Markets are wrong.
InMode posted an increase in net income, to $31 million. It earned 36 cents a share. It benefited from a 16% growth in the sales of consumables and services. This is a strong indicator of its utilization rate. Demand for its platforms is increasing.
Chief Executive Officer Shakil Lakhani said that over 30% of its customers in the U.S. bought a second device. Top sales will keep rising as long as InMode’s business strength accelerates in U.S. markets.
Markets are discounting the negative impact of China’s lockdown in Shanghai. Looking forward, the government will ease or eliminate those restrictions. InMode also absorbed higher shipping and component costs. Since it did not pass costs to customers, it risks gross margin pressures.
InMode does not raise prices in the middle of the year. It needed to first manage supply chain challenges to avoid angering its customers. If demand remains strong, InMode could raise product prices.
Stocks to Buy and Hold: Moderna (MRNA)
Moderna (NASDAQ:MRNA) reported revenue more than doubling, up 214.4% to $6.1 billion. Markets dismissed the impressive results because they think the demand for the Covid-19 vaccine will fall. Governments need to prevent the virus from spreading in subsequent seasons. Expect countries to implement an annual vaccination schedule to keep the coronavirus from harming people.
Moderna is broadening its addressable market. It began enrolment for mRNA-3927, which studies propionic academia. The study will involve five patients. It fully enrolled its methylmalonic acidemia candidate (mRNA-3705) study. Moderna has 46 programs in development. 29 of them are on active clinical trials.
At its annual science and technology day conference, Moderna discussed its use of mathematical models. It uses them to help the company predict vaccine immunogenicity and reactogenicity. Moderna is unlike any biotechnology company. It does not silo its research, delivery, and manufacturing. Instead, when its researchers encounter issues, the teams meet quickly to solve problems.
Markets are discounting Moderna’s valuable RNA model central to the vaccine market. Investors assign a discounted value to its covid-19 vaccine. Once the company proves it is more than that, MRNA stock will recover.
Target (TGT)
Target (NYSE:TGT) scared investors when it posted lower profits in the first quarter. The company took a large inventory impairment charge. TGT is priced in the lingering markdown risk ahead.
Chief Financial Officer Michael Fiddelke said that Target has more inventory to work through. He is confident the company will recognize those losses in the first and second quarters. The back-to-school and college seasonal strength ahead will reverse weak sales. Furthermore, Target may report better results during the holiday season.
Target’s freight and transportation pressure increased its expenses. To protect against supply chain disruption, management will optimize its product mix. In the last quarter, the company did not anticipate a dramatic increase in transportation costs. It thought the lingering stimulus would sustain consumer demand.
Target is ready to shift away from small appliances and television products. It expects demand for products like luggage for travel and toys for children will improve future sales volumes.
Analysts are optimistic about Target’s future value. The average target price is $199.25, according to Tipranks.
Stocks to Buy and Hold: Walmart (WMT)
Walmart (NYSE:WMT) rewards investors with a dividend and is usually a strong retailer in an inflationary environment. The company scared investors when it posted e-commerce growth of 1% YOY. Revenue rose by 2.4% YOY to $141.6 billion.
For the full fiscal 2022 year, Walmart expects net sales to increase by around 4%. Earnings per share will fall by 1%. Markets oversold WMT stock when it did not appreciate the strength of its quarterly sales. For example, it enjoyed sales of high-ticket items like game consoles, patio furniture, gardening, and grills.
Chances are good that Walmart stock is oversold. The company took on more inventory than it needed. Still, it experienced strong sales in general merchandise. The warmer weather will encourage customers to shop at the store.
Walmart could face some profit margin pressures. It must not rely too much on rollback pricing to clear inventory. It needs to sell higher-priced items without excess discounting. This will limit the profit margin deterioration in the upcoming quarter.
With inflation rising, price sensitivity for grocery items will increase. Walmart will benefit from optimizing its grocery categories to increase traffic to its stores. This will speed up its business recovery as its revenue recovers.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.