Inflation and more rate hikes have many investors nervous about what to expect as a recession we’ve dreaded for a year begins to touchdown. Though it’s a tough year for a beginner to put new money to work, there are plenty of names that Wall Street analysts are still confident in.
As earnings season comes in, it’s easy to feel anxious as the pain of rate hikes is finally felt. In any case, the recent uptick in rates has incentivized moves to improve efficiencies. Cost cuts and more conservative capital allocation moves could pave the way for numbers that aren’t as ugly as expected.
Therefore, in this piece, we’ll look at two “Strong Buy” stocks that analysts expect to deliver over the year ahead.
Nike (NYSE:NKE)
Sneaker top dog Nike felt the cool breeze of a recession just over a year ago, with shares plunging more than 53% from peak to trough. Undoubtedly, the haircut represented one of the worst declines in the stock’s history. Supply issues, inflation, and inventory surpluses have weighed down Nike. I am bullish.
With a recession on the horizon, demand for discretionary goods could act as more salt in the wounds as Nike looks to markdowns to clear excess inventory. Notably, the second quarter saw inventory levels surge by 43%. Unfortunately, markdowns mean margin pressures at a time when consumer wallets are feeling the pinch from inflation and economic headwinds.
Still, a large part of the margin headwinds seems already baked in after Nike’s historic fall. Though shares have recovered quite a bit of ground in recent months, I do think the stock’s undervalued relative to the power of its brand and its ability to start running higher again on the other side of a recession.
Longer term, the direct-to-consumer (DTC) shift can still act as a longer-term booster to margins. Markdowns and macro headwinds will offset the positive impact of DTC. However, when conditions normalize, Nike will probably be right back to where it was, with the wind at its back.
At 33.3 times trailing earnings, NKE stock seems expensive relative to the footwear industry average of 31.7 times. That said, Nike has one of the strongest brands on the planet, making it deserving of a slight premium. Further, longer-term tailwinds (innovation and DTC) still seem discounted at the expense of nearer-term macro headwinds.
What is the Price Target for NKE Stock?
Wall Street analysts view Nike stock favorably, with a “Strong Buy” rating comprised of 21 Buys and six Holds. The average NKE stock price target of $131.33 implies 10.6% gains for the year ahead.
Disney (NYSE:DIS)
The media and streaming space has become incredibly hard to compete in over the past few years. Disney has endured an epic fall, but there is hope as the company looks to bring the magic back to the 100-year-old firm. I remain incredibly bullish.
Bob Iger is back, and he’s seemingly had the upper hand on activists thus far, with Nelson Peltz recently ending his proxy fight. The return of Iger will see big changes and cost trims. With 7,000 job cuts and $3 billion slashed from the non-sports content budget, Disney seems to be getting back on the profitability track.
Disney+ recently suffered 2.4 million in subscriber losses in the latest quarter. As Iger looks to shift gears to find a better balance between growth and profitability, I do think recent bumps in the road over at the Streaming division can be forgiven.
Indeed, Streaming has been quite the loss driver for Disney. As the firm looks to unlock efficiencies across its core businesses, I do think Disney has what it takes to impress, even as the recession moves through the economy.
At 1.9 times book value, Disney stock is worlds cheaper than the likes of Netflix (NASDAQ:NFLX) (at 6.9 times book value). As Iger looks to work his magic, I think Disney could make for a perfect turnaround play.
What is the Price Target for DIS Stock?
Wall Street has a “Strong Buy” on the house of mouse, with 17 Buys and just three Holds. The average DIS stock price target of $127.00 implies 27.5% gains.
The Takeaway
Nike and Disney are two Dow Jones Industrial Average (DJIA) components that have felt the pressure of late. Even as recession hits, analysts see a path higher for the two names. However, Disney stock has the greater upside potential from here, according to analysts.
