Most veteran long-term investors understand that the recent marketwide weakness is an opportunity rather than a problem. The market ebbs and flows all the time. After a very bullish 2021, it was due for an ebb. Now's the time to step into any long-term name you've been eying, simply because it's probably cheaper than it was just a few months ago.
For a handful of stocks, though, the weakness is so extreme and so obviously temporary that these tickers are screaming buys right now. Here's a closer look at three of my current favorites from this select group.
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1. Procter & Gamble
Yes, consumer goods giant Procter & Gamble (PG 0.68%) is facing extreme inflation. Not only are its raw-material costs to make detergent, shampoo, diapers, and a bunch of other stuff much higher than they were a year ago, but its freight costs are higher, too. And this is at a time when consumers are feeling a financial pinch outside of grocery stores as well, like at the gas pump, the nearby hardware store, and restaurants. This is the crux of the reason P&G shares are down more than 10% just since April and trading back to where they were priced as of November.
What investors may not be fully appreciating, however, is how resilient consumers' loyalty to P&G's brands is. Of last quarter's 10% year-over-year improvement in organic sales, half of that growth came from higher prices being passed along to its retailers, who pass them along to shoppers, while nearly a third of it was the result of increased volume, or more product deliveries.
Also being overlooked is the likely cooling of cost increases later this year, and next.
No, inflation hasn't been anywhere near as "transitory" as suggested it would be last year. It's instead been persistent, and persistently high. As of its most recent look, the Bureau of Labor Statistics indicates that April's average overall costs for consumers are 8.3% higher than they were a year ago. Ouch!
Take a closer look at the data, though. We're right at the one-year anniversary of when prices started to soar. From here the price comparisons should start to ease. In fact, April's inflation fell just a bit from March's, suggesting we may already be seeing the beginning of a cooling that most investors don't think is in store. P&G's stock is certainly still priced as if this is the case.
2. Walmart
Walmart (WMT 1.32%) is another consumer-facing name seemingly stung by inflation. Although its first-quarter sales grew to the tune of 2.3% year over year, its cost of sales grew 3.5%, while its operating and selling expenses were up 4.5% year over year. The end result? Operating earnings of $1.30 per share not only fell from the year-earlier comparison of $1.69, but they also fell short of the $1.48 per share analysts were collectively expecting. The stock's down 15% just since those numbers were posted in mid-May, and down more than 20% from April's peak. Some shareholders may have recognized how disappointing the numbers were going to be before they were published.
Investors, however, may be making the same mistake here that they are with P&G: the assumption that inflationary pressure will never ease. It will -- eventually -- and is likely to ease sooner rather than later.
The world's biggest retailer is adapting in the meantime. Late last week, Walmart unveiled plans to build four new next-generation fulfillment centers within the next three years. These facilities will be powered by artificial intelligence and utilize robotics. These tools not only make merchandise move faster from storage to store to shopper, but they also do it more cost-effectively than all-human handling does.
And that's just one of the ways Walmart is addressing inflation that may or may not last a whole lot longer. The company also continues to expand its own private-label brands, including Great Value and Onn. These less expensive, higher-margin alternatives to national brands like P&G's were getting traction before prices were soaring. But they've seen a clear uptick in demand for some shoppers who can't pay premium prices for basic goods.
In other words, it's arguable that an already resilient Walmart may actually be deriving some direct benefit from an inflationary environment, just as it will benefit from any looming recession that also keeps people cost-conscious.
3. Pinterest
Finally, add Pinterest (PINS -0.52%) to your list of stocks that are screaming buys right now. This name's down nearly 80% since the highs it hit in February of last year, trading roughly where it was before the COVID-19 pandemic took hold.
Although considered a social media name, the platform certainly doesn't look like other social media players, such as Meta Platforms' Facebook or Twitter do. Pinterest is just a shared collection of topics, ideas, and pictures other Pinterest users can follow. The company's advertising/revenue model isn't terribly clear, either. That's largely because the company's executives have spent the bulk of Pinterest's existence focusing on building a following and driving traffic.
There's a method to the madness, though, that's about to bear fruit. Namely, Pinterest is now turning up the heat on monetizing its site.
OK, the heat was actually turned up back in 2019. The advent of the coronavirus contagion just obscured the outcome of several initiatives put in place around that time. It wasn't all bad, though. Indeed, the pandemic actually helped Pinterest in 2020 and 2021 by offering locked-down consumers a form of at-home entertainment. Now that consumers are feeling confident enough to venture out in the world, they're visiting Pinterest less often. To this end, the average number of monthly users slipped 9% to 433 million during the first quarter of the year, for perspective -- one of the reasons shares have continued to slide.
Look at the bigger picture, however. That quarter's user activity is being compared to activity from the first quarter of 2021, near the height of COVID-19's fallout. Even so, revenue grew 18% year over year in the first quarter of this year, underscoring just how much Pinterest's ad-revenue engine is revving now that its management is more focused on this aspect of its business. Analysts are calling for similar sales growth for all of this year and next year, too, suggesting consumers are weary of platforms with a tendency to become caustic, like Twitter and Facebook, and are now looking for a more casual social media experience.
