As the calendar year draws to a close, investors looking to make last-minute additions to their portfolios still have time to take advantage of buying opportunities. In a year when many stocks saw significant gains, you may be looking to determine which companies will continue booming and which will burn out like a cheap New Year's firework.
All seasonal analogies aside, there are three particularly hot stocks investors should be eyeing for the month of December. This buy list is complete with a turnaround story, a proven performer, and a game-changer.
Let's take a look at why I'm high on Papa John's (NASDAQ: PZZA), Target (NYSE: TGT), and Dunkin' Brands (NASDAQ: DNKN).
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The turnaround story: Papa John's
Coming into 2019, Papa John's was in bad shape thanks to the fallout from racist comments from the founder of the company, John Schattner. In the two years leading up to January, the stock had fallen more than 50% to just under $40 a share. But recent positive financials fueled by management changes are signaling the start of a turnaround and a great buying opportunity for investors.
In the company's most recent earnings report, global restaurant sales were up 2.3% compared to being down 6.6% last year, comparable-sales growth figures in company-owned and franchised stores in North America were up 2.2% and 0.6%, respectively, compared to being down 13.3% and 8.6% last year, and systemwide sales in North America were up 1% for the first positive quarter out of the last eight. While recovery numbers should always be framed as easier to achieve thanks to the low bar set in the prior year, these are still substantial numbers and important indicators.
More importantly, though, Rob Lynch was named the new CEO of the company two months ago. Lynch is a proven performer most well-known for his marketing efforts fueling Arby's turnaround from 2015 to 2017.
With sales metrics starting to turn in a big way and a clear plan forward being driven by a proven performer, I see a lot of potential upside for Papa John's.
The proven performer: Target
Heading into Target's most recent earnings report, I posed three questions the company needed to answer in order for me to determine potential future success. Here are the three questions and how Target delivered.
- What does the growth in traditional digital sales look like? Digital sales channels grew by 31%, with 20% of that attributed to traditional digital sales.
- Are same-day options in the digital channel continuing to grow? 80% of this quarter's digital channel growth is attributed to same-day fulfillment services.
- Are brick-and-mortar sales continuing to grow, or at least maintaining profitability? Total sales growth grew by 4.5% up from 3.4% in Q2; 62% of this growth is attributed to the brick-and-mortar sales channel.
For a frame of reference, the digital channel now makes up 7.5% of Target's total sales.
Target delivered on all points. This is a company successfully adapting to a changing market through e-commerce and same-day convenience options, while still maintaining growth in the classic brick-and-mortar setting. Expect Target to continue claiming its piece of the digital sales pie into 2020.
The game-changer: Dunkin' Brands
For years, Dunkin' Brands' flagship coffee shops have catered to those looking for a quick and inexpensive cup of drip coffee. That all changed 12 months ago, though, when the company entered Starbucks' (NASDAQ: SBUX) airspace by moving into the hand-crafted beverage and espresso markets.
While you might have called the company crazy last year, the results speak for themselves. Total revenue is up 5.8%, and systemwide sales are up 4.4% year over year. Additionally, comparable sales growth was up 1.5% last quarter.
What does this have to do with espresso? A lot. In its last earnings release, the company clearly states that this sales success is led by strength in premium beverages. The second and third quarters of this year saw 30% and 40% year-over-year growth, respectively, in espresso sales. If Dunkin' is successfully able to continue infringing on Starbuck's turf, the company is going to open up a lot of market to expand into.
I believe Dunkin' can do it, but more importantly, the CEO of the company believes it. At the beginning of the year, CEO Dave Hoffman said during the company's Q1 earnings call, "High-quality espresso beverages sold at a fair price and served at the speed of Dunkin' is something only we can do."
While no one has mentioned Starbucks by name, this is clearly a shot over the bow that can now be backed up with sales numbers.
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Jason Lee has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends Dunkin' Brands Group. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.