The stock market has been booming in recent weeks. Some observers even believe we are in a new bull market since all three major indexes are now up more than 20% from their bear market lows. No matter how one wants to label it, investor optimism has certainly improved.
If you're looking for stocks to capitalize on the market rebound, keep reading to see three that still look like good buys right now.
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1. Signet Jewelers
Signet Jewelers (SIG 2.15%) doesn't get a lot of attention in the financial media, but the company has a number of competitive advantages in the jewelry industry.
It's the world's largest retailer of diamond jewelry, giving it unmatched economies of scale. It's gained market share through acquisitions like Blue Nile and through organic growth, including in its digital channel, as it can make investments in tech that smaller independent retailers can't.
The company just reported first-quarter earnings, and the stock fell on the news as management cut its guidance due to macroeconomic headwinds that appeared toward the end of the quarter.
While the company beat estimates for the first quarter, it now sees adjusted earnings per share of $9.49 to $10.09 for the year. This means that even with that dialed-down guidance, the stock trades at a forward price-to-earnings ratio of just above 6, which is especially cheap for a consumer discretionary stock in a recessionary climate.
There's also good reason to expect Signet's performance to bounce back. About half of the company's business comes from the bridal segment, including engagement rings, wedding bands, and other jewelry related to weddings. Engagements have slowed due to a pause in new relationships during the worst of the pandemic. However, the company expects weddings to begin to pick up by the end of the year, meaning the business is well-positioned for a recovery next year.
Additionally, the company is planning to cut costs by up to $250 million, in part from continuing to rationalize its store base, which should help juice profitability as the bridal business returns. At a forward price-to-earnings (P/E) ratio of just 6, the stock is too cheap to ignore and looks like an easy win from here.
2. Booking Holdings
Travel is back, and there's no bigger travel stock than Booking Holdings (BKNG 0.53%). Booking, which owns its namesake site, Kayak, Priceline, Rentalcars.com, Agoda, and OpenTable, is the world's biggest online travel agency and does more in bookings than any other hotel chain.
Revenue jumped 40% in its most recent quarter, and the company should benefit from a pullback in the value of the dollar over the rest of the year as most of its business comes from outside the U.S.
Booking's growth is expected to moderate as the initial boom from the post-pandemic reopening fades. However, the company benefits from its strong brand and positioning in a high-margin business, connecting travelers with hotels. As revenue continues to grow, the company's margins should expand as it gains leverage on fixed costs like salaries.
Booking also has a long track record of buying back stock. It's reduced shares outstanding by about a third over the last decade.
Going forward, the company seems well-positioned to benefit from the growth in the travel industry. Trends like remote work should support increased levels of leisure travel compared to pre-pandemic times, and people have shown a preference for spending on services like travel and restaurants rather than goods as they make up for lost time during the pandemic lockdowns.
With its high-margin business model, Booking should capitalize on that windfall, paving the way for opportunistic share buybacks.
3. Carnival
Carnival (CCL -0.66%), the world's biggest cruise line operator, is another travel stock that looks poised to continue to recover.
While Booking has an asset-light business model, Carnival is the opposite. Its ships come with high fixed costs, and that led the company to take on a lot of debt and dilute shareholders during the pandemic's height.
However, the good news is that leverage cuts both ways, and booking trends are around record levels. Carnival has the potential to be highly profitable if demand is strong and prices are up, and that perfect storm seems to be brewing.
In fact, Wall Street is now taking notice. The cruise operator has scored several upgrades in recent weeks as analysts noted that booking trends continue to be robust.
Carnival posted a generally accepted accounting principles (GAAP) loss in its first-quarter report, a seasonally slower time of year. However, the company said customer deposits reached a first-quarter record of $5.7 billion, 16% above the previous level in its history. It also experienced the highest booking volumes for any quarter in its history, a clear sign demand is returning in full force.
That points to record profits coming down the pike, and Carnival should be able to leverage those gains to pay down debt and buy back stock, restoring its balance sheet. As long as demand remains strong, the stock should continue its rebound, as it's still well below pre-pandemic levels.
