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PoolCorp, Simon Property Group, HP, Dell Technologies and Apple highlighted as Zacks Bull and Bear of the Day

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Zacks Equity Research
·13-min read
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For Immediate Release

Chicago, IL – July 13, 2020 – Zacks Equity Research Shares of PoolCorp POOL as the Bull of the Day, Simon Property Group SPG asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on HP Inc. HPQ, Dell Technologies Inc. DELL and Apple Inc. AAPL.

Here is a synopsis of all five stocks:

Bull of the Day:

The coronavirus pandemic has decimated many industries. Almost every US business that depends on in-person transactions has seen a reduction in revenues and many firms in the travel and leisure industries have been either entirely closed or are limping along with skeleton crews – and just trying to keep the doors open for a potential reopening.

Fortunately, there have also been some businesses that have seen surprising benefits from the upheaval of shelter-in-place orders and fear of infections – and often in industries that no one might have reasonably guessed when this crisis started earlier in 2020.

For instance, the swimming pool business is absolutely booming!

With more than 10 million Americans unemployed and many small businesses struggling, building a swimming pool might seem like an unobtainable luxury item for many people, but businesses that install and maintain backyard pools have actually been seeing a huge uptick in activity.

With temperatures rising and many beaches and public swimming facilities closed or operating with significant restrictions in place, Americans are increasingly looking to have their own private place to swim with their families. Though scientific information about the coronavirus remains incomplete, it is widely believed that – like pretty much every other known virus – it doesn’t survive well in an environment of sunshine and chlorinated water.

Anecdotally, pool builders who might typically install 20-30 pools in an average year report hundreds or even thousands of quote requests. Many homeowners who don’t want to wait months or longer for an in-ground, concrete installation are purchasing relatively inexpensive above-ground pools to get the family swimming as soon as possible.

In addition to safe recreational opportunities, all of those would-be backyard bathers are likely about to get another surprise – pools cost a lot of money to buy, repair and maintain. There’s the ongoing expense of chemicals and supplies to maintain sanitary conditions, plus the mechanical equipment necessary to circulate, filter and heat the water needs fairly regular service and replacement. Chlorinated – and sometimes salinated – water is not a hospitable environment for machines.

If you don’t adequately maintain a pool, nature quickly transforms it from it from a beautiful oasis to a murky and unhealthy swamp. It’s also not generally a viable option to remove a pool once it’s installed, even if you decide you don’t want it anymore. The money spent on ongoing maintenance is basically a perpetual annuity for suppliers.

New construction also provides big revenues. A basic set of equipment for a backyard pool – frequently referred to in the industry as a “pad” because of the flat concrete panels it’s generally installed on – starts at about $5,000 and can easily grow to 3-4 times that amount if the customers add higher technology features like salt-water chlorination and internet-based smartphone controls.

Louisiana-based PoolCorp is the world’s largest wholesale distributor of products for the construction, maintenance and repair of swimming pools. After a brief drop-off at the beginning of the crisis in the US, revenues have been soaring lately. With almost 400 outlets all over the country, virtually every contractor and pool service professional buys parts and supplies from the company.

There are smaller regional outfits that compete with PoolCorp in some locations, but on a national scale, POOL enjoys something close to a natural monopoly. Their sheer size affords significant economies of scale and allows them to offer customers an enormous selection that includes parts and supplies on demand to get their customers back in a safe swimming environment as quickly as possible

With annual revenues over $3 billion, PoolCorp is in the enviable position of enjoying the ongoing sales associated with pool maintenance as well as a big bump during periods like now when construction and installation are on the rise. They sell everything necessary to create a new pool, everything to maintain it - and even rafts and foam noodles to enjoy while you’re in it.

Unlike software and technology companies that can scale up immediately in the face of increased demand, there’s a natural limit to the amount of physical assets a company like PoolCorp can physically deliver to customers, but what the company lacks in huge growth potential in any given period, it makes up for in relentless consistency.

Quarter after quarter and year after year, revenues and earnings continue to grow at high-single digit rates. It’s the kind of solid performer that doesn’t tend to get a lot of headline news coverage during normal conditions but also has the potential to see strong revenue growth during periods (like the present) when things really fall into place. With estimates rising over the past 60 days, POOL currently enjoys a Zacks Rank #1 (Strong Buy).

 

Bear of the Day:

The performance of Real Estate Investment Trusts has been a mixed bag lately. On one hand, public companies that own rental properties and are required by law to pay out 90% of their pre-tax income to shareholders have been providing yields that are much more attractive than the rates that can be earned in money-market savings accounts or fixed-income instruments like Treasury bonds.

In normal conditions, REITs tend to trade more like bonds, with prices that rise as interest rates fall.

On the other hand, there’s a very real possibility that REITs that invest in the commercial markets will see widespread tenant lease defaults. As consumers continue to shift their shopping habits to include more online purchases and fewer trips to the mall, an increasing number of large brick-and-mortar retailers have filed for bankruptcy protection.

Traditional retailers closed more than 9,000 locations in the US during 2019 – even before the Coronavirus pandemic struck. Once- mighty retailers like JC Penney, Nieman Marcus and General Nutrition Centers – as well as at least 12 other companies – have filed for federal protection from creditors as they try to either reorganize or sell their businesses.

Every situation is unique, but in general, landlords wind up in a subordinated position when a tenant files for bankruptcy protection. The rules are complex, but under Chapter 11, the tenant retains flexibility to continue occupying the property for 60 days and in the event of a liquidation, the landlord becomes an unsecured creditor.

Unpaid rent as well as legal fees, property taxes and other expenses add up quickly, so landlords typically have an incentive to come to an agreement with troubled tenants rather than going through the process of eviction – and searching for another tenant who is willing to move into the space.

Generally these events are fairly rare and commercial REITs are adept at mitigating the damage of tenant defaults and protecting their dividends. These are not normal times, however.

Simon Property Group is a REIT that specializes in properties leased by restaurants, retail stores and entertainment venues. In happier times, SPG reports solid Funds From Operations and pays a steady dividend. (Funds From Operations is an industry-specific measure that’s a more accurate representation of performance than GAAP earnings because it neutralizes the effects of depreciation.)

At the beginning of 2020 when SPG shares were trading near $145/share, the company’s portfolio of 204 properties allowed them to pay a regular dividend of between 3-5% - a very solid yield. At the more recent share level of around $64/share, the dividend yield is now north of 8% annually.


Paradoxically, that’s not a positive development.

When investors let a company’s shares creep down to levels at which the dividend yield looks juicy, it’s generally because they expect that firm’s ability to keep paying the dividend to be reduced. REIT investors tend to be at the more sophisticated end of the spectrum – often high net-worth individuals and institutional investors who manage large pension programs and university endowments and who seek to achieve consistent results in terms of total return.

This is an opportunity for an average individual to follow the pros. When they leave a high-yielding stock behind, you should probably be wary of it as well.

Simon Property Group is a well-managed and successful REIT and still has a strong balance sheet, but general conditions are simply not in its favor right now. With mall visits, health club workouts and restaurant meals all down significantly right now – and for the foreseeable future – there are much less risky options available for income investors.

Additional content:

3 Stocks to Watch as Strong Demand Pushes PC Shipments

Sales of personal computers rebounded strongly in the quarter ended June. After offices and schools across the United States were forced to close down because of the coronavirus-led lockdown, the number of employees working from home surged along with the sheer volume of students engaged in online learning.

This spike in demand for personal computers has pushed some information technology stocks to the forefront, which could do better in the near future. Hence one should keep an eye on these stocks for now.

Strong Uptick in PC Sales in Q2 2020

According to two leading industry-research firms in the country, Gartner Inc. and International Data Corp., personal computer shipments jumped significantly during second-quarter 2020.

Gartner reported global PC shipments of 64.8 million units during Q2, which were up 28% on a year-over-year basis, driven by sales in Europe, Africa and the Middle East. IDC reported a different figure, stating that PC shipments rose 11.2% to hit 72.3 million shipments for the quarter.

The difference in the figures by both firms lies in the way they define the PC market. For example, Gartner considers shipments of desktop PCs, notebooks and ultramobile devices such as the Microsoft Surface under the umbrella of its “PC market” but does not acknowledge sales of Chromebook or iPads.

On the other hand, IDC defines personal computers as desktops, notebooks, Chromebooks and workstations, but does not take into account tablets or Intel x86 servers.

According to both firms, HP Inc. and Lenovo were the top sellers of personal computers in the last quarter. Lenovo grabbed 25% market share, while HP accounted for 24.9%, per Gartner. However, IDC placed HP on top with 25% market share, followed by Lenovo’s 24.1%.

Apart from the two companies mentioned above, Dell Technologies Inc., Apple Inc. and Acer Inc. made it to the top five companies benefiting from remarkable sales of personal computers in second-quarter 2020, according to both firms.

Could PC Shipments Surge Further in the Near Future?

With coronavirus cases in the United States crossing three million this week, some of the earlier social distancing measures have been coming back. Uncertainty over an economic recovery is rising as well, especially with the infectious disease creating chaos in the domestic economy.

In such a scenario, it is evident that more people will try their best to work from home instead of heading out to the office. In addition, although schools around the country are debating whether to reopen campuses in the fall, schools could still offer a mix of in-person and remote learning in a bid to limit the size of a class and comply with social-distancing measures from the Centers for Disease Control and Prevention.

Therefore, one may anticipate that demand for PC sales wouldn’t lag in the near future.

3 Stocks to Watch

We have, thus, chosen three stocks that are benefiting from the surge in PC shipments. All these stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Apple belongs to the Zacks Computer - Mini computers industry. The company has an expected earnings growth rate of 23.7% for the next year. The Zacks Consensus Estimate for the company’s current-year earnings has moved 0.2% north in the past 30 days.

Dell Technologies belongs to the Zacks Computers - IT Services industry. The company has an expected earnings growth rate of 6.8% for the next year. The Zacks Consensus Estimate for the company’s current-year earnings has moved 5.6% north in the past 30 days.

HP belongs to the Zacks Computer - Mini computers industry. The company has an expected earnings growth rate of 5.7% for the next year. The Zacks Consensus Estimate for the company’s current-year earnings has moved 0.5% north in the past 30 days.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

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