Please ensure Javascript is enabled for purposes of website accessibility

These 2 Surging Stocks Are Still Buys

By Timothy Green – Updated Apr 14, 2019 at 8:41AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

More gains could be coming for these still-cheap stocks.

I highlighted Hanesbrands (HBI -4.50%) and Skechers (SKX -3.85%) as two beaten-down stocks to buy back in December. The timing was lucky -- both stocks and the broader market bottomed out just a few days later.

The stock market has done well since then, with the S&P 500 gaining nearly 20% from the bottom. But Hanesbrands and Skechers have each gained more than 50%. Those are impressive gains, but they're not the end of the story. Both stocks are still cheap, and both would still make great additions to your portfolio.

Check out the latest earnings call transcript for Skechers and Hanesbrands.

HBI Chart

HBI data by YCharts.


2018 wasn't a great year for Hanesbrands until the very end. Retailer Target announced it was dropping C9 by Champion, an exclusive line of activewear, from its stores in 2020. That blew a $380 million hole in Hanesbrands' annual revenue, and it threatened a key growth business for the company.

Later, the bankruptcy of Sears Holdings and a strengthening U.S. dollar led Hanesbrands to reduce its full-year outlook. The company took a $14 million bad-debt charge related to Sears, and it assumed that it would lose about 1% of its sales as the iconic retailer circled the drain.

Those two negative developments set the stage for a brutal decline when the stock market ran into trouble in December. In the six months ending when Hanesbrands stock finally bottomed out in late December, the shares lost nearly 50% of their value.

Things have quickly gotten better. Hanesbrands stock has surged, now up a whopping 66% from its low. A big chunk of that gain came after Hanesbrands reported exceptionally strong fourth-quarter results. Revenue surged 7.5% year over year, led by growth in activewear and international sales. And while adjusted earnings per share declined, they would have risen by 12% if not for a higher tax rate.

Even after the big rally of the past two months, Hanesbrands stock remains cheap. Shares trade for just 11 times the midpoint of the company's adjusted earnings guidance, and a dividend yield above 3% is icing on the cake. Hanesbrands isn't a growth company, and the loss of the Target revenue will create some challenges next year. But the pessimism that decimated the stock in 2018 was clearly overdone.

Skechers shoes.

Image source: Skechers.


Shares of Skechers were also beaten down in 2018 thanks to extreme pessimism. Since bottoming out in late December, the stock is up about 55%. A strong fourth-quarter report, featuring solid revenue growth and a big boost to per-share earnings, helped undo much of the damage of the past year. The company managed to keep costs in check, something it hasn't been able to do in recent quarters amid investments in international markets.

Skechers expects revenue growth in the first quarter to be weak, thanks to currency and the timing of the Easter holiday. But analysts are expecting solid 7.8% revenue growth for the full year, along with near-double-digit earnings growth. Based on the average analyst estimate for 2019 earnings, Skechers stock trades for about 16 times earnings.

That may not seem all that cheap, but Skechers' balance sheet is loaded with excess cash. The company had $1.07 billion in cash, cash equivalents, and investments at the end of the fourth quarter and just $97 million in debt. If the net cash is backed out, Skechers' cash-adjusted price-to-earnings ratio falls to just 13.

Skechers stock isn't as cheap as Hanesbrands. Its long-term growth prospects are likely better, given its opportunity in China and other international markets, so that makes some sense. But the stock is still trading at a discount to the market, even after surging over the past couple of months. It's not too late to buy this cheap growth stock.

Timothy Green owns shares of Hanesbrands and Skechers. The Motley Fool owns shares of and recommends Skechers. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Skechers U.S.A., Inc. Stock Quote
Skechers U.S.A., Inc.
$33.92 (-3.85%) $-1.36
Hanesbrands Inc. Stock Quote
Hanesbrands Inc.
$7.64 (-4.50%) $0.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.