The stock market has been facing immense pressure lately due to the Fed's potential aggressive interest rate hikes to bring down the inflation, which increased by 8.6% in May, the highest increase since December 1981. Analysts at Deutsche Bank expect that the Federal Reserve could consider a 0.75 percentage basis interest rate hike at the central bank's meetings both this week and in July. As a result, the U.S. stocks officially entered a bear market, with the S&P 500 declining more than 20% since the beginning of the year.
Hedge-fund veteran Leon Cooperman, who predicted that the U.S. economy would slip into a recession, believes the S&P 500 could drop 40% more. However, the recent market correction has caused many high-quality stocks to trade at a discount. According to Wei Li, BlackRock Investment Institute's global chief investment strategist, “U.S. stocks have suffered their biggest year-to-date losses since at least the 1960s. That’s ignited calls to ‘buy the dip.’”
So, we think it could be wise to add battered yet quality stocks Meritage Homes Corporation (MTH), Kontoor Brands, Inc. (KTB), and Masonite International Corporation (DOOR) to your portfolio.
Meritage Homes Corporation (MTH)
MTH, along with its subsidiaries, designs and develops single-family homes in the United States. The company has two operational segments, Homebuilding, and Financial Services. It acquires and develops land; and constructs, markets, and sells homes for first-time and first move-up buyers.
Last month, MTH announced that it has renewed and extended its partnership with Operation Homefront, a leader in a national nonprofit organization committed to building strong, stable, and secure military families. Jointly, the organizations will place three deserving military families into brand new, mortgage-free, energy-efficient Meritage homes in the Houston, Nashville, and Tucson metro areas. This is the ninth year Meritage Homes has built and donated homes to Operation Homefront through the Permanent Homes for Veterans program. The company will have donated 17 homes to military families once these houses are completed later this year.
During the first quarter ended March 31, 2022, MTH’s total closing revenue increased 19% year-over-year to $1.29 billion. Its total closing gross profit improved 45% from its year-ago value to $388.44 million, while its net earnings amounted to $217.25 million, up 65% from its prior-year quarter. The company’s EPS rose 68% year-over-year to $5.79.
Analysts expect MTH’s revenue to increase 8.8% year-over-year to $1.39 billion for the second quarter ending June 2022. The consensus EPS estimate of $5.90 represents a 22.9% improvement year-over-year for the second quarter ending June 2022. In addition, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters. The stock has declined 37.6% year-to-date to close its last trading session at $82.62.
MTH’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has a B grade for Growth and Sentiment. Within the B-rated Homebuilders industry, it is ranked #3 of 24 stocks. To see additional POWR Ratings for Value, Quality, Stability, and Momentum for MTH, click here.
Kontoor Brands, Inc. (KTB)
Headquartered in Greensboro, North Carolina, KTB is a lifestyle apparel company that designs, manufactures, procures, markets, and distributes denim, apparel, and accessories under the Wrangler, Lee, and Rock & Republic brands internationally.
In the first quarter ending March 31, 2022, KTB's net revenues increased 4% year-over-year to $679.74 million. Its operating income grew 16% from its year-ago value to $108.22 million, while its net income came in at $80.81 million, up 25% from its prior-year quarter. The company's EPS rose 28.4% year-over-year to $1.40.
The consensus EPS estimate of $1.03 for the second quarter ending June 2022 represents a 46.8% year-over-year growth. Analysts expect revenue to increase 28.8% year-over-year to $632.25 million for the second quarter ending June 2022. In addition, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters. The company’s shares have plunged 46.9% over the past year to close its last trading session at $33.64.
KTB's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Growth, Quality, and Value. Within the B-rated Fashion & Luxury industry, it is ranked #10 of 68 stocks.
In total, we rate KTB on eight different levels. Beyond what we've stated above, we have also given KTB grades for Stability, Sentiment, and Momentum. Get all the KTB ratings here.
Masonite International Corporation (DOOR)
DOOR designs, manufactures, markets, and distributes interior and exterior doors for the new construction and repair, renovation, and remodeling sectors of the residential and non-residential building construction markets internationally.
This month, DOOR announced that Masonite Performance Door System, its latest innovation in exterior door systems, is 64% better at keeping air and water out than the leading competitor, based on certified third-party testing. "The new Masonite Performance Door System is proven to withstand the elements and is backed by a 10-year limited full-replacement warranty," said Chris Ball, President, Global Residential."
For the first quarter ending April 3, 2022, DOOR’s net sales increased 12.4% year-over-year to $726.22 million. Its operating income grew 37.7% from its year-ago value to $101.02 million, while its net income improved 43.8% from its prior-year quarter to $67.58 million. The company’s EPS rose 52.9% year-over-year to $2.89. The stock has plunged 29.6% year-to-date to close its last trading session at $82.62.
Analysts expect DOOR’s revenue to increase 10.5% year-over-year to $731.75 million for the second quarter ending June 2022. The company's EPS is expected to grow 12.7% year-over-year to $2.51 in the second quarter ending June 2022. Also, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters.
Undoubtedly, DOOR has an overall B rating, equating to Buy in our POWR Ratings system. DOOR has a B grade for Growth, Sentiment, and Value. In the C-rated Home Improvement & Goods industry, it is ranked #7 of 63 stocks
Click here for the additional POWR Ratings for DOOR (Stability, Momentum, and Quality).
MTH shares were trading at $75.30 per share on Wednesday morning, up $1.01 (+1.36%). Year-to-date, MTH has declined -38.31%, versus a -20.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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