A Market Shift:
In recent trading sessions, the stock market has shown signs of fatigue, with Wall Street entering a period of profit-taking after a brief surge off a crucial short-term moving average. The Nasdaq’s dip below its 21-day moving average is noteworthy, as this level has historically provided solid bullish support throughout 2024.
The Investment Landscape:
It’s inevitable that major U.S. indexes will retrace to longer-term averages like the 50-day or 21-week metrics. While a substantial pullback may occur imminently or in the future, savvy investors perceive such corrections as compelling buying opportunities. Despite Wall Street’s periodic revisions regarding inflation and interest rates, the bullish sentiment endures, underpinning the decision to stay invested in the market and continue procuring stocks, particularly with a long-range perspective.
Stride, Inc. (LRN):
One such stock to consider is Stride, Inc. LRN’s share price has ascended by a remarkable 110% over the past three years, significantly outpacing the 30% benchmark return. Particularly noteworthy is the 53% rally witnessed over the last 12 months, exceeding the Zacks Tech sector’s 47% growth. Beyond post-pandemic success, Stride has delivered a formidable 180% surge in the past decade, aligning with the S&P 500. While the stock has leveled off in 2024, maintaining a sideways trajectory since early December, the current stabilization could present an opportune entry point for prospective investors.
Opportunities for Growth:
Moreover, Stride is attracting support from its 21-week moving average, although short-term selling pressures could emerge in tandem with broader market trends. Trading at a 17% discount relative to its Zacks price target, Stride’s valuation paints an attractive picture. The stock appears conspicuously undervalued, with a trading price resting 80% below its highs and 45% under its 10-year median valuation. Notably, Stride trades at 13.3 times forward earnings, a remarkable bargain considering its stock price proximity to all-time highs.
Revenue Projections:
Stride’s revenue trajectory attests to its growth potential, escalating from $400 million in 2010 to $1.84 billion in the previous year. With a 9% sales surge in FY23 and a subsequent 10% increase in FY22 following a meteoric 48% rise in FY21, Stride is anticipated to sustain a 10% growth rate in FY24 and a further 6% uptick in FY25. LRN, on the other hand, is earmarked for a 45% leap in adjusted earnings in FY24, with a subsequent 10% increase in FY25. Stride’s consistent outperformance against EPS estimates has secured it a Zacks Rank #1 (Strong Buy).
Toll Brothers, Inc. (TOL):
Another eminent contender in the market is Toll Brothers, Inc. TOL has dominated the luxury homebuilding sector, evidenced by a formidable 230% surge in the past five years, doubling the S&P 500 performance and outstripping the Zacks Construction segment’s 150% return. Noteworthy is the stock’s remarkable 100% climb in the last 12 months, with a 16% year-to-date increment.
Valuation Overview:
While Toll Brothers appears slightly overextended from a technical standpoint, trading beyond overbought RSI levels on a 10-year horizon and substantially above its 21-day and 21-week moving averages, the stock offers a compelling value proposition. Despite its current proximity to all-time highs, Toll Brothers trade at a 55% discount relative to its 10-year peaks. Trading at a 50% markdown relative to the Construction sector and positioned 17% below the Home Builders industry, TOL presents an enticing bargain for investors.
Market Dynamics:
Toll Brothers, a diversified luxury home builder with integrated architectural, engineering, mortgage, and various subsidiaries, operates across a broad geographic expanse encompassing half of the U.S. states and over 60 markets from coast to coast, catering to high-end clientele.
Adapting to Market Trends:
Although Toll Brothers faces a forthcoming deceleration in the housing market, bullish earnings revisions post the February 20 financial release have bolstered its Zacks Rank to #1 (Strong Buy). Noteworthy is the 42% uptick in TOL’s net signed contract value in Q1 FY24, indicative of a resilient performance amidst evolving market conditions. With Millennials driving the housing segment and Baby Boomers transitioning into retirement and relocation phases, Toll Brothers is strategically positioned to capitalize on shifting demographic trends.