2 Stocks to Buy for Dividends and Growth as Dow Hits Record
The Nasdaq bounced back on Tuesday and closed Wednesday just barely in the red, which is a positive sign after a few weeks of major swings. As tech stocks cooled off, the Dow popped 1.5% during regular trading to close above 32000 for the first time.
The blue-chip index notched its 11th record close of 2021. The S&P 500 jumped 0.60% to inch within 1.2% of its mid-February highs, as Wall Street rotates into underperforming areas, as well as reopening stocks.
Investors are attempting to figure out what impact more government spending and the increased likelihood of a huge vaccine-boosted economic comeback will have on the market. For instance, a Wall Street Journal survey of economists projects that U.S. GDP will grow by 5.95% in 2021, for its fastest in roughly 40 years.
The rising bond yields signal increased inflation worries. But U.S. Treasury yields remain historically low and the earnings outlook for the S&P 500 has improved substantially over the last several months.
Given this backdrop, investors likely want to find ways to safely add to their portfolios this year. Today, we review two highly-ranked stocks with solid fundamentals and Treasury-topping dividend yields that might be worth buying…
Rent-A-Center, Inc. RCII
Rent-A-Center is a lease-to-own retail giant that enables people to slowly pay off everything from furniture and appliances to TVs and more. The company’s sales climbed over 5% in 2020 and it topped our Q4 sales estimates in late February. RCII’s adjusted fourth earnings surged nearly 80% and its sales jumped 7%, as its second-half growth improved significantly from a coronavirus-impacted first half of 2020.
RCII in February also closed its acquisition of Acima Holdings to help improve its e-commerce offerings in a world where many companies now offer payment plans on everything from electronics to shoes. “E-commerce and digital payments are enhancing our engagement with our customers, and we have a strategic advantage compared to other firms competing in the virtual lease-to-own (‘LTO’) industry to further leverage our last-mile capabilities,” CEO Mitch Fadel said in prepared Q4 remarks.
Zacks estimates call for Rent-A-Center’s revenue to soar 55% to reach $4.4 billion in fiscal 2021 and another 11% in FY22. Meanwhile, its adjusted earnings are projected to climb by 44% and 18%, respectively over this stretch. Both the projected top and bottom-line growth will be boosted by its Acima purchase.
The chart showcases how much Rent-A-Center’s earnings out ook has improved since its report, with its FY21 consensus up 37%. RCII’s positive EPS revisions help it land a Zacks Rank #1 (Strong Buy), alongside its “A” grade for Momentum and “B” for Value in our Style Scores system.
RCII shares have soared 230% during the last 12 months to crush Target’s TGT 65% and Shopify’s SHOP 142%. This outperformance is even greater over the past three months, with its shares up 80% vs. the Consumer Discretionary Market’s 9%.
Rent-A-Center is not just a pandemic fluke, given that its shares are up over 550% in the past three years. The stock quickly recovered its early March losses to trade at brand new records on Wednesday of over $61 a share. The run makes RCII’s 2% dividend yield all the more impressive. And the 2% yield easily tops the 10-year Treasury and retail giant Walmart’s WMT 1.7%.
RCII trades at 0.70X forward sales to mark a solid discount to its industry’s 5.5X and its own one-year highs of 1X. The same is true for its valuation in terms of forward earnings.
Plus, five of the seven broker recommendations Zacks has for Rent-A-Center come in at “Strong Buys,” with none lower than a "Hold." And Rent-A-Center’s Acima acquisition, which it hopes creates a “premier fintech platform across traditional and virtual lease-to-own segments,” could prove vital in the quickly-changing retail landscape.
Texas Instruments TXN
Texas Instruments makes analog and embedded semiconductors that are utilized within the automotive and industrial sectors, as well as consumer electronics, communications equipment and elsewhere. The chip power returned to growth in the last two quarters of 2020 after a tough stretch within the historically cyclical space.
TXN beat our Q4 FY20 estimates in late January, with revenue up 22% from the year-ago quarter to help its adjusted earnings surge over 60%. The strong back-half of 2020 helped Texas Instruments sales grow by 0.5% on the year. Like with RCII, analysts have raised their outlooks for Texas Instruments since its last report, with its FY21 consensus earnings estimate up 13% and its FY22 figure 12% higher.
Looking ahead, Zacks estimates call for its revenue to climb over 15% this year to reach $16.7 billion—which would easily top FY18’s total—and help lift its adjusted EPS by 12%. TXN’s top and bottom-line growth is expected to continue in FY22 to the tune of 5% stronger revenue and 9% higher earnings.
TXN’s bottom-line revisions help the stock grab a Zacks Rank #2 (Buy) at the moment. Texas Instruments also earns a “B” grade for both Growth and it has consistently surpassed our earnings estimates, including a 35% average beat in the trailing four periods.
The tech giant with a $156 billion market cap is also firmly committed to rewarding shareholders, as it continually improves its balance sheet. TXN has raised its dividend for 17 years in a row, including a 13% hike in 2020.
Texas Instruments is poised to keep buying back stock, having already reduced its share count by 46% over the past 15 years. The dividend currently yields 2.4% to top Intel INTC and the 30-year U.S. Treasury, which both sit at roughly 2.2%.
The yield isn’t artificially inflated by a falling stock price either, with TXN up 60% in the last year to just outpace its highly-ranked industry. Texas Instruments shares have also largely matched its industry over the three years and the past decade. At $169 a share, TXN closed regular trading Wednesday roughly 6% below its mid-February records.
Meanwhile, Texas Instruments rests below neutral levels in terms of RSI at 48—where anything above 70 is considered overbought and below 30 is thought of as oversold. The stock also trades right at its own year-long median when it comes to forward 12-month sales and earnings.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
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Target Corporation (TGT): Free Stock Analysis Report
RentACenter, Inc. (RCII): Free Stock Analysis Report
Walmart Inc. (WMT): Free Stock Analysis Report
Shopify Inc. (SHOP): Free Stock Analysis Report
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