In this article, we discuss 5 best cyclical stocks to buy now. If you want to see more stocks in this selection, check out 11 Best Cyclical Stocks to Buy Now.
5. Boyd Gaming Corporation (NYSE:BYD)
Number of Hedge Fund Holders: 35
Boyd Gaming Corporation (NYSE:BYD) is a Chinese conglomerate that manufactures automobiles, buses, electric bicycles, trucks, forklifts, solar panels, and rechargeable batteries. On September 15, Boyd Gaming Corporation (NYSE:BYD) declared a quarterly dividend of $0.15 per share, in line with previous. The dividend is payable on October 15, to shareholders of record as of September 30. Boyd Gaming Corporation (NYSE:BYD) is one of the best cyclical stocks to buy now.
On September 23, JMP Securities analyst Jordan Bender initiated coverage of Boyd Gaming Corporation (NYSE:BYD) with an Outperform rating and a $65 price target. The analyst sees a “disconnect” between the stock’s valuation and gaming fundamentals. However, the macro backdrop in Nevada remains resilient, driving a strong spend per head in the locals/downtown market, where Boyd Gaming Corporation (NYSE:BYD) makes 39% of its earnings, the analyst told investors. The analyst said Nevada has proven to be one of the strongest gaming markets.
Among the hedge funds tracked by Insider Monkey, 35 funds were bullish on Boyd Gaming Corporation (NYSE:BYD) at the end of June 2022, compared to 40 funds in the last quarter. Parag Vora’s HG Vora Capital Management is the leading stakeholder of the company, with 4.75 million shares valued at $236.3 million.
Here is what Baron Real Estate Fund has to say about Boyd Gaming Corporation (NYSE:BYD) in its Q2 2022 investor letter:
“Boyd Gaming Corporation is one of the largest and most successful casino entertainment companies in the U.S. The company owns and operates 28 casino gaming properties in 10 states with a large presence in Las Vegas. Business conditions have been strong, yet the shares are valued at only 6 times 2022 estimated cash flow versus a long-term average of more than 9 times cash flow. The company maintains a strong and liquid balance sheet. Insiders own approximately 27% of the company. We believe Boyd is a compelling acquisition target.”
4. Deckers Outdoor Corporation (NYSE:DECK)
Number of Hedge Fund Holders: 35
Deckers Outdoor Corporation (NYSE:DECK) is a California-based designer footwear company. The company authorized a $1.2 billion share repurchase program in the second quarter of 2022. Deckers Outdoor Corporation (NYSE:DECK) believes that fiscal year 2023 is off to a solid start, and the full-year 2022 EPS guide was boosted to $17.50-$18.35, up from the earlier forecast of $17.40-$18.25. Similarly, guidance for revenue growth of 10%-11% and operating margin of 17.5%-18.0% was reiterated for the full year.
On September 15, Wedbush analyst Tom Nikic upgraded Deckers Outdoor Corporation (NYSE:DECK) to Outperform from Neutral with a price target of $410, up from $320. The analyst also added Deckers Brands to the Wedbush Best Ideas List. Amidst an extremely difficult retail environment, Deckers Outdoor Corporation (NYSE:DECK) stood out in the last earnings season as one of the only firms in his coverage to actually raise guidance, the analyst added. With a combination of top-line growth, resilient margins, and a fortress balance sheet, the analyst believes that “this high-quality name is poised to be a continued outperformer.”
According to Insider Monkey’s data, 35 hedge funds were long Deckers Outdoor Corporation (NYSE:DECK) at the end of Q2 2022, compared to 46 funds in the prior quarter. Robert Pitts’ Steadfast Capital Management is the largest stakeholder of the company, with 1.26 million shares worth $323.8 million.
3. Brunswick Corporation (NYSE:BC)
Number of Hedge Fund Holders: 36
Brunswick Corporation (NYSE:BC) operates in the recreational marine industry, and it owns major boating including Sea Ray, Boston Whaler, Bayliner, Mercury Marine, Attwood, Lund, Crestliner, Mastervolt, MotorGuide, Harris Pontoons, Freedom Boat Club, Princecraft, Heyday, Lowe, Uttern, Quicksilver, and CZone, among many others. In Q3 2022, the company expects revenue growth of mid-twenties percent more than the third quarter of 2021 and an EPS between $2.50 and $2.65. Brunswick Corporation (NYSE:BC) is one of the best cyclical stocks to consider.
On August 9, BMO Capital analyst Gerrick Johnson upgraded Brunswick Corporation (NYSE:BC) to Outperform from Market Perform with a price target of $110, up from $90. The stock has pulled back to an attractive valuation due to investor concerns about sustainable demand and the impact of a weakening economy, the analyst told investors. The present valuation “more than takes these factors into account” while demand for boats and marine products continues to be robust, meaningfully exceeding supply, noted the analyst.
Among the hedge funds tracked by Insider Monkey, 36 funds were long Brunswick Corporation (NYSE:BC) at the end of June 2022, compared to 37 funds in the prior quarter. William Von Mueffling’s Cantillon Capital Management is the biggest stakeholder of the company, with 4.3 million shares valued at $284 million.
Here is what Chartwell Investment Partners has to say about Brunswick Corporation (NYSE:BC) in its Q2 2022 investor letter:
“We also took advantage of the sell-off in boat & engine manufacturer Brunswick Corp. (NYSE:BC, 2.3%) and added to the holding. This stock sells at less than 7 times its annual earnings per share ’22 EPS estimates. The company recently held an analyst briefing and quantified the downside to sales, margins, and earnings in an economic downturn. We think the stock is attractively priced even in that scenario and that it is a long-term double-digit-percentage earnings grower.”
2. RH (NYSE:RH)
Number of Hedge Fund Holders: 59
RH (NYSE:RH) is a California-based retailer of home furnishings, selling furniture, lighting, textiles, decor, and outdoor and garden equipment. The company reported $8.08 in adjusted diluted EPS and $992 million in revenue for the second quarter of 2022, beating market estimates of $6.70 and $969.20 million, respectively. RH (NYSE:RH) is one of the best cyclical stocks to invest in.
William Blair analyst Phillip Blee on September 21 assumed coverage of RH (NYSE:RH) with an Outperform rating and no price target. The company recently posted better than anticipated sales and earnings for fiscal Q2 but lowered its full-year outlook on the back of a largely uncertain macro environment, the analyst told investors in a research note. While RH (NYSE:RH) profited from broader consumer trends over the last two years, the analyst believes the company remains well positioned for long-term sales growth and margin expansion, despite some short-term headwinds.
Among the hedge funds tracked by Insider Monkey, 59 funds reported owning stakes worth $2.05 billion in RH (NYSE:RH) at the end of Q2 2022, compared to 63 funds in the prior quarter worth $2.84 billion. Warren Buffett’s Berkshire Hathaway is the largest position holder in the company, with 2.17 million shares valued at $460.6 million.
Here is what GreenWood Investors specifically said about RH (NYSE:RH) in its Q2 2022 investor letter:
“Gary Friedman, the owner manager of RH (NYSE:RH), has been talking about the company climbing the luxury mountain over the past few years. Wall Street is skeptical RH can hold its leading margin profile after elevated demand during Covid, and it surely doubts that it is a luxury company, at 10x earnings. We’ve been looking to get involved in the housing ecosystem given the dramatic selloff in the sector over the past year, and our first investment here is via RH. Demographically, we expect US household formation to remain very strong after a decade of underinvestment in housing supply. Gary strategically with-held new product launches in the aftermath of Covid, when times were easiest, and is now releasing a new premium product lineup. We believe there is a lot of latent pricing power in home furnishing, and while high interest rates are trapping people in a home they would otherwise possibly leave, we believe the consumer, particularly the high-end consumer, will look to continue to upgrade their homes.
The truest test of Gary’s quest to make RH a true luxury company is in fact a recession. One of the reasons why there are few, if any, American luxury businesses, is that without a family controlling the company, optimizer-oriented management teams cannot withstand the pain that comes from not discounting a product line into weak demand. We can’t recall a single American company that has “destroyed” inventory like the French luxury companies in the face of a recession. Many have tried. Few, if any, have succeeded.
Anchored by Gary’s 21% ownership of the company, RH has a good chance. And not only is it not tempted in the current volatile environment to discount, but he is actually raising prices. With a buyback authorized for over 30% of the shares outstanding, Friedman is also not shying away from making bold investments in the current environment. He is aggressively expanding galleries and introducing new marquee European properties. The combined product launch cadence, increased prices, aggressive footprint investments and forthcoming share repurchases, not to mention low valuation, made us move off the sidelines and take a position in RH. While we are certainly not hoping for a recession, we are excited that such an environment could solidify Gary’s mission to make RH a rare American luxury brand.”
1. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 75
General Motors Company (NYSE:GM) manufactures and sells trucks, crossovers, cars, electric vehicles, and automobile parts and accessories in North America, the Asia Pacific, the Middle East, Africa, South America, the United States, and China. The company announced on September 23 that it will spend $760 million to renovate its Propulsion Systems factory in Toledo, Ohio, to build drive units used in electric vehicles. The plant will make drive lines for future electric trucks including the Chevrolet Silverado, GMC Sierra pickup, and GMC Hummer EVs.
Citi analyst Itay Michaeli on September 23 maintained a Buy recommendation on General Motors Company (NYSE:GM) but lowered the price target on the shares to $78 from $87. The analyst adjusted his traditional automaker and tier-1 supplier models to factor in reduced production estimates, mainly due to constrained supply chains in 2023, as well as a weak macro outlook in Europe. However, the analyst sees a comparatively better setup for automakers than suppliers, though he expects the setup to “evolve” as Q3 results near. He believes automaker fundamentals “still appear more macro resilient than what’s currently priced-in.”
According to Insider Monkey’s data, 75 hedge funds were bullish on General Motors Company (NYSE:GM) at the end of Q2 2022, compared to 76 funds in the last quarter. Harris Associates is one of the leading stakeholders of the company, with 43.6 million shares worth $1.4 billion.
Here is what Chartwell Investment Partners has to say about General Motors Company (NYSE:GM) in its Q2 2022 investor letter:
“The three worst-performing stocks in the Dividend Equity accounts include General Motors (NYSE:GM, 2.4%), down 27.4%. GM posted solid first-quarter earnings, but supply issues continue to be a headwind and the market appears to be “pricing-in” at least a mild recession. The question seems to be: by the time the supply constraints are resolved, will we be in a much-worse economic scenario that will “hit” the demand side?
After a couple quarters of higher-than-average trading, Q2 was extremely light in both the Growth & Balanced and Dividend Equity accounts (see below). After trimming GM earlier in the year at much higher price levels, we added back to the position. Now trading at $32 per share, GM’s P/E multiple on 2022 earnings estimates is below 5 times its annual earnings per share, which we think is very attractive and is already pricing-in at least a mild recession.”
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