In this article, we discuss 5 stocks that the high inflation is crushing. If you want to see more stocks that are impacted by inflation, check out High Inflation is Crushing These 10 Stocks.
5. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 57
Builders FirstSource, Inc. (NYSE:BLDR) is an American provider of building materials, manufactured components, and construction services. As inflation soars, people usually stop investing in home renovations and further construction since these are discretionary expenses. Builders FirstSource, Inc. (NYSE:BLDR) stock has dropped about 17% year to date as of August 10.
On August 2, BTIG analyst Ryan Gilbert downgraded Builders FirstSource, Inc. (NYSE:BLDR) to Neutral from Buy without a price target. The analyst said that the downgrade is cyclical rather than owing to its Q2 results or corporate strategy, and told investors that results from the firm’s homebuilding coverage, survey work, and Census data all point to buyer demand plummeting in Q2 2022, starting in May and worsening in June and July. The analyst sees limited upside for further outperformance or multiple expansion until macro headwinds subside.
Among the hedge funds tracked by Insider Monkey, 57 funds were long Builders FirstSource, Inc. (NYSE:BLDR) at the end of Q1 2022, down from 59 funds in the prior quarter. Coliseum Capital is the leading position holder in the company, with 5.5 million shares worth $358.42 million.
Here is what Black Bear Value Fund has to say about Builders FirstSource, Inc. (NASDAQ:BLDR) in its Q2 2022 investor letter:
“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.
The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.
BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 13-19% free-cash flow yield so little growth is needed for us to compound value at high rates.”
4. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 65
Lowe’s Companies, Inc. (NYSE:LOW) operates as a home improvement retailer in the United States. On August 9, JPMorgan analyst Christopher Horvers lowered the price target on Lowe’s Companies, Inc. (NYSE:LOW) to $210 from $230 and kept a Neutral rating on the shares. The “earnings revision curve continues to deteriorate” for most of retail, with the “trifecta of pressures” on the consumer, such as rampant inflation, spending normalization, and slowing housing, combined with two years of abnormal full price selling and soaring costs, the analyst told investors. Reactions to downward estimate revisions “have been more positive lately,” which leads more companies to take down guidance comfortably, said the analyst.
According to Insider Monkey’s data, 65 hedge funds were bullish on Lowe’s Companies, Inc. (NYSE:LOW) at the conclusion of the first quarter of 2022, down from 72 funds in the prior quarter. Bill Ackman’s Pershing Square is the leading stakeholder of the company, with 10.20 million shares worth over $2 billion.
In its Q4 2021 investor letter, Pershing Square Capital Management, an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. (NYSE:LOW) was one of them. Here is what the fund said:
“Lowe’s Companies, Inc. (NYSE:LOW) is a high-quality business with significant long-term earnings growth potential
Supportive macroeconomic backdrop
-Aging housing stock, lack of new inventory, robust home equity values, and unprecedented pro project backlog
-COVID-19 causing millennials to enter the housing market
Positioned to grow EPS largely independent of market conditions
-Idiosyncratic revenue opportunities driving share gains
-Self-help initiatives catalyzing operating margin expansion
-Buybacks representing ~8% of current market capitalization planned for 2022
Multi-year business transformation with substantial earnings upside
-Margin target of 13% has substantial upside; Home Depot at ~15.3% and increasing
-Potential to generate high-teens EPS growth over the next several years.
Lowe’s Companies, Inc. (NYSE:LOW) continues to trade at a significantly discounted P/E multiple relative to Home Depot despite materially higher prospective EPS growth. LOW’s share price including dividends increased 63% in 2021 and has decreased 10% year-to-date in 2022.”
3. NIKE, Inc. (NYSE:NKE)
Number of Hedge Fund Holders: 67
NIKE, Inc. (NYSE:NKE) is an American manufacturer of athletic footwear, apparel, equipment, and accessories worldwide. In addition to inflationary pressures on retail, Nike is also facing troubles in China. Exane BNP Paribas analyst Laurent Vasilescu on August 9 downgraded NIKE, Inc. (NYSE:NKE) to Neutral from Outperform with a price target of $118, down from $151. The analyst observed that NIKE, Inc. (NYSE:NKE)’s FY25 financial targets were redacted in the latest 10-K and there is increased uncertainty about the FY25 targets being met. These targets may be “on pause” due to higher uncertainty in China and NIKE, Inc. (NYSE:NKE) facing possible market share losses and elevated discounting in the U.S., its biggest market, added the analyst. NIKE, Inc. (NYSE:NKE) stock has shed more than 31% in value year to date as of August 10.
According to Insider Monkey’s data, 67 hedge funds were bullish on NIKE, Inc. (NYSE:NKE) at the end of Q1 2022, compared to 68 funds in the prior quarter. Ken Fisher’s Fisher Asset Management featured as the leading stakeholder of the company, with 8.3 million shares worth $1.11 billion.
Here is what ClearBridge All Cap Growth Strategy has to say about NIKE, Inc. (NYSE:NKE) in its Q4 2021 investor letter:
“Nike is another play on e-commerce as well as the anticipated growth in consumer spending as we learn to live with COVID-19. After selling out of the stock in 2016 due to competitive concerns, we were motivated to repurchase shares because of optimism around a new management team’s focus on accelerating Nike’s shift toward e-commerce and direct-to-consumer (DTC) distribution. Near-term supply chain issues in Vietnam and retail weakness in China that we see as ephemeral provided a good buying opportunity. We do not believe the market is giving proper credit to Nike’s potential to deliver attractive, high-single-digit revenue growth while delivering operating margin expansion as more merchandise is sold directly. Nike is also still under indexed to the women’s category, which we see as a significant ongoing catalyst.”
2. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 72
Shopify Inc. (NYSE:SHOP) is a Canadian e-commerce company that operates its platform in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. Shopify Inc. (NYSE:SHOP) stock has plunged over 70% year to date as of August 10 as customers budget their expenses and decrease discretionary purchases. The stock still seems extremely overvalued as it is trading at 9x revenues. On August 10, DZ Bank analyst Axel Herlinghaus downgraded Shopify Inc. (NYSE:SHOP) to Hold from Buy. Similarly, the stock was downgraded by KGI Securities analyst Freddy Chan to Neutral from Outperform on August 5.
According to Insider Monkey’s data, 72 hedge funds reported owning stakes in Shopify Inc. (NYSE:SHOP) at the conclusion of Q1 2022, down from 86 funds in the prior quarter. Stephen Mandel’s Lone Pine Capital is a significant shareholder of the company, with a position worth $699 million.
Here is what Rowan Street has to say about Shopify Inc. (NYSE:SHOP) in its Q2 2022 investor letter:
“Tobias Lutke, Shopify (NYSE:SHOP) Founder and CEO
When Tobias Lütke opened an online snowboarding store in 2004, he realized how painfully cumbersome e-commerce software was. So he decided to create Shopify – a platform that made it easy for anyone to open up an online store.
Tobi has built Shopify into one of the most popular e-commerce platforms in the world, with $175 billion in GMV (Gross Merchandise Value) and $4.6 billion in revenues in 2021. SHOP went public in 2015, when revenues were just lightly above $200 million, and the stock is up 1,233% since its IPO. Shopify stock peaked in November 2021 (traded at astronomical 47x sales), which coincided with peak enthusiasm for the tech-driven, “stay-home” stocks. Since then, the stock is down almost 80% and is currently trading at just 6x 2023E sales. We believe that Mr. Market is offering us an exceptional value, at current price levels, for an exceptional company led by a very talented, visionary founder/CEO.”
1. Expedia Group, Inc. (NASDAQ:EXPE)
Number of Hedge Fund Holders: 88
Expedia Group, Inc. (NASDAQ:EXPE) is a Washington-based online travel company operating in the United States and internationally. Inflation has impacted travel stocks considerably, as most people cut down on travel expenses to fulfill their basic needs. Expedia Group, Inc. (NASDAQ:EXPE) stock has shed more than 41% in value year to date as of August 10.
On August 5, Mizuho analyst James Lee slashed the price target on Expedia Group, Inc. (NASDAQ:EXPE) to $132 from $172 and reiterated a Neutral rating on the shares after the Q2 results. EBITDA exceeded expectations notably, indicating the operating leverage of the online travel agency model, the analyst told investors. However, July lodging bookings growth was five points less than June. The analyst is focused on fiscal 2023 and macro uncertainties that could lead consumers to trade down or cut spending on travel.
According to Insider Monkey’s data, 88 hedge funds were bullish on Expedia Group, Inc. (NASDAQ:EXPE) at the end of March 2022, compared to 82 funds in the last quarter. Daniel Sundheim’s D1 Capital Partners is the biggest stakeholder of the company, with 7.6 million shares worth about $1.5 billion.
Here is what Artisan Global Value Fund has to say about Expedia Group Inc. (NASDAQ:EXPE) in its Q2 2022 investor letter:
“Expedia declined 52% during the quarter due to concerns a consumer recession will reduce spending on discretionary items like travel, as well as concerns that the company is losing market share to other online travel agencies. While the fears of a potential recession are real, the current environment is actually pretty good. This summer will be one of the busiest travel seasons. As recently as June, Expedia’s management signaled it had yet to see any signs of a slowdown. It could certainly happen, but it has not yet.
Recent results, while strong, did show a slower recovery compared to peers. Part of the shortfall in performance is explained by mix. The other part is due to the company’s decision to restructure its business during the pandemic. Over the past two years, Expedia made significant changes to improve structural profitability by cutting off unprofitable partners, geographies and marketing channels. The business is somewhat smaller but should be stronger and far more profitable than it was prior to the pandemic.
Benefits from Expedia’s improvements are already visible and should continue into next year as they are fully implemented. The improvements should help the company shift to a less transactional business model that creates more durable relationships with customers and drives good profit growth into 2023. The company announced unit economics had already improved and plans to provide new disclosures allowing investors to track the performance of its improvements.
Expedia’s shares are now trading around the same level as during the middle of the pandemic. It is hard to imagine any recessionary scenario that could equal the middle of COVID-19 when travel was essentially non-existent. Looking through this, we estimate normal earnings power in the $11-$12 per share range, which puts the shares at 7X-8X normal earnings.”
You can also take a look at 10 Best Dividend Stocks to Buy in 2022 and 10 Best Cyclical Stocks for Inflation.
