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3 Top Stocks You’ve Been Overlooking

Find out which often-neglected companies might have the best prospects going forward.

Being a great investor requires finding the most promising companies in places where most people aren’t looking. Whether you choose companies in beaten-down industries, obscure stocks that fly under the radar, or well-known industry giants that are hiding in plain sight, the ability to identify investment opportunities that have what it takes to produce strong returns can make a huge difference in your investing results. Below, we take a look at Sherwin-Williams (NYSE:SHW), Kohl’s (NYSE:KSS), and Nucor (NYSE:NUE) as promising stocks that many people haven’t looked at closely.

Don’t ignore this stock’s recent 12% drop

Neha Chamaria (Sherwin-Williams Co.): Sherwin-Williams’ stock has lost almost 12% in the past three months, with much of the drop coming after the paint maker announced its third-quarter earnings on Oct. 25. It isn’t hard to see why: Sherwin-Williams’ sales and earnings per share grew only about 4% and 3% each year over year, missing analysts’ estimates. The company also downgraded its full-year earnings guidance.

So why should you still consider Sherwin-Williams? For two reasons: expanding same-store sales and strong growth plans. Sherwin-Williams’ same-store sales from its core paints business climbed 5% during the first nine months of the year, which means the company is generating higher sales from stores that have been open for more than a year. That’s pretty good, considering that Sherwin-Williams opened 55 new paint stores during the period. In other words, Sherwin-Williams’ top line is growing because customers are flocking to its stores and not just because it has added new stores.

That store expansion also highlights Sherwin-Williams’ focus on growth. But all eyes are on its impending acquisition of Valspar, a deal that will expand Sherwin-Williams’ global footprint substantially, especially in the high-potential Asia-Pacific region. It’s worth mentioning here that costs associated with the acquisition were partly responsible for Sherwin-Williams’ muted Q3 earnings and lower guidance. But beyond that, Sherwin-Williams’ expects the acquisition to save $280 million in annual costs by 2018 and be immediately accretive to earnings.

Meanwhile, Sherwin-Williams might offer a small dividend yield of 1.3%, but investors can sleep well at night knowing it’s a Dividend Aristocrat that has raised its dividend for 37 consecutive years. Chances are, you wouldn’t want to overlook Sherwin-Williams anymore, especially after its recent drop.

A department store worth buying

Tim Green (Kohl’s Corp.): Shares of department store Kohl’s soared after the company reported its third-quarter results. While revenue and comparable sales continued to slump, there was plenty of good news. Per-share adjusted earnings grew, driven by a decline in operating expense and share buybacks, and CEO Kevin Mansell pointed to encouraging trends as the company enters the holiday season.

Kohl’s, like many retailers, is struggling to attract customers to its stores. This doesn’t seem to be a problem specific to Kohl’s, instead plaguing many of its peers as well, including Macy’s and Nordstrom. Kohl’s has been able to manage costs and inventory effectively, and its ample cash flow has fueled share buybacks that have knocked down the share count substantially. The company still expects to produce as much as $4 in adjusted earnings per share this year, putting the stock price at about 13 times earnings.

Kohl’s is no longer expanding its store base, but that doesn’t mean that it can’t be a good investment. Many investors have completely overlooked retailers, and department stores in general, due to widespread weakness. Kohl’s stock has been in a funk for more than a year, but the company has shown that it can maintain profitability despite weak sales. With a potentially solid holiday season ahead, Kohl’s is an overlooked stock to consider.

Steel your resolve to find great stocks

Dan Caplinger (Nucor): The steel industry got hit hard in recent years, and Nucor was among the many stocks in the industry that suffered as a result. A decline in the amount of construction and infrastructure activity worldwide, especially in formerly hot emerging-market economies like China, sent steel prices down sharply, and that led to falling revenue and difficulties in earning profits for many players in the steel industry.

Nue Steel
IMAGE SOURCE: NUCOR.

However, Nucor has stood out in the steel industry because of its ability to remain profitable even when other steel producers were taking massive losses. Nucor’s electric arc technology distinguishes it from other players in the industry, many of which use blast furnaces that aren’t as easy to bring into and out of production when industry conditions warrant such changes. Nucor also has negotiated terms with its employees that many feel are more favorable than what other steelmakers face. Going forward, Nucor’s ability to use scrap metal rather than raw iron ore pellets will be an advantage when iron ore prices recover.

Nucor has quietly risen more than 50% so far in 2016, but it still pays a 2.5% dividend and has a track record of more than 40 years of consecutive dividend increases. For those who believe that industrial America is due for a bounce, Nucor looks like it’s in prime position to benefit.

10 stocks we like better than Kohls
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Dan Caplinger has no position in any stocks mentioned. Neha Chamaria has no position in any stocks mentioned. Timothy Green owns shares of Kohl’s. The Motley Fool recommends Nucor and Sherwin-Williams. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

 

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Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.