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School’s out, and for better or worse, my family is in the throes of an action-packed summer. (I kid. I’m actually excited to get at it.)
Something that hasn’t been very action-packed of late is North American stock markets. As always, there are pockets of intrigue, but I’ve been garnering more enjoyment from watching the daisies outside my window come into bloom than checking the ol’ quote screen of late.
Attractive opportunities exist, and we’re about to trot out five of them. But in terms of when they too might bloom is as challenging as ever to consider. We’re in a situation where many of the companies we follow are showing continued improvement, yet it seems all for naught. These days, it seems the only companies with a market capitalization that begins with a “T” are capturing investors’ attention.
Initiating and accumulating positions in solid businesses during these periods of market ignorance, though, is a time-honoured (and Foolish) way of winning this game of investing. That said, patience and an ability to manage one’s frustration are key components of this strategy. Our suggestion is to buy some shares of any or all of these five companies and then go find some daisies of your own!
Foolishly yours,
Iain Butler, CFA
Advisor, Stock Advisor Canada
“Best Buys Now” Pick #1:
Lululemon (NASDAQ:LULU)
Retail has been one of the market’s primary pain points in recent months. Seemingly, the inflationary environment that we’ve experienced in North America has impacted consumer spending on more discretionary items, like yoga pants and such.
Fair enough. The thing is, when it comes to Vancouver-based Lululemon (NASDAQ:LULU), there’s a bigger picture to consider.
While we think there’s still a lot of room to expand and take more share of both women’s and men’s fitness and athleisure wear, sales growth in North America isn’t likely to be the biggest driver of the next phase of expansion. Consider that North American sales were up 12% in 2023 but only 3% in the first quarter of 2024, while international sales were up 54% last year and 35% to start fiscal 2024.
Of the $9.6 billion in 2023 revenue, $7.6 billion came from the Americas, with China accounting for $964 million in sales and the rest of the world just breaking the $1 billion sales mark. We expect international sales to continue to expand for many years to come.
Despite its international growth strategy, Lululemon shares are down by 20% over the past year and now trade for 23 times and 16 times trailing earnings and operating cash flow, respectively. For context, that works out to a more than 40% discount to its 10-year average earnings multiple and less than half of its average cash flow valuation over the past decade.
This is a high-quality business that’s facing a challenging macro environment on its home turf. But the Lululemon story is far from written and we’re of the mind that the market has lost sight of the long-term opportunity in front of this company.
