There's no denying that a whole bunch of stocks are very richly valued right now, making it difficult to feel good about buying much of anything. Not every stock, though. A handful of high-quality names have lagged of late and, as such, may still be worth stepping into. Here's a closer look at three of my favorites among this small bunch.
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Walmart
Yes, Walmart (WMT -1.18%) shares tumbled following the release of last quarter's numbers. Although revenue of $177.4 billion topped estimates of $175.9 billion, for the first time in a long time, earnings of $0.66 per share missed analysts' consensus estimate of $0.73.
Profit guidance for the quarter now underway was also a bit disappointing, with the company conceding that newly imposed tariffs were taking a toll on its business. Indeed, after several months of lethargy, thanks to the post-earnings pullback, Walmart's stock is back to where it was at the beginning of this year.
Investors as a whole, however, seem to have lost perspective on Walmart's continued resilience. Yes, earnings fell short. Consider the circumstances, though. Given the impact that tariffs could be making (and seem to be making on other retailers), the improvement from the year-ago per-share profit of $0.67 is acceptable...particularly in light of companywide year-over-year revenue growth of 4.8% and U.S. same-store sales growth of 4.6%.
It's also worth noting that Walmart's total cost of sales for the quarter in question was up only 4.7%, in step with sales growth rather than exceeding it. Most of the new pressure on the bottom line actually came from higher interest payment costs that are largely beyond the company's control.
Let's also not forget that while its second-quarter earnings and Q3 earnings guidance fell short of investors' expectations, the company still upped its sales and profit guidance for the full fiscal year. It was looking for a top-line improvement of between 3% and 4%. Now it's calling for an increase of between 3.75% and 4.75%.
Its previous profit guidance of between $2.50 and $2.60 per share was raised to a range of $2.52 to $2.62 as well, likely fueled by still-strong growth of its e-commerce and U.S. advertising ventures, which improved 25% and 36% (respectively) in the recently ended second quarter.
The point is, so fixated on the potential impact of tariffs, most investors seem to be missing the fact that the world's biggest brick-and-mortar retailer is actually doing quite well. The stock will eventually reflect this continued strength, though.
Domino's Pizza
When Warren Buffett's Berkshire Hathaway first established a stake in pizza chain Domino's Pizza (DPZ 0.92%) late last year, plenty of people followed that lead. They've not been particularly well rewarded, however. The stock's back to where it was then.
If you're going to buy a Buffett stock, though, you need to have Buffett-like patience. That means a willingness to hold it for years on end and not worry about any volatility it experiences in the meantime.
The thing is, this is the right kind of stock to be patient with.
It's not an industry-specific detail most people give much thought to. But pizza may be the perfect fast-food business to be in. Its raw ingredients are relatively cheap, and the process of making a pizza (in assembly line fashion) is fairly simple and can be done within a relatively small footprint that doesn't require customer seating.
Each market can somewhat customize its menu and pricing, too. And perhaps most important, pizza is always marketable because it's always a relatively cost-effective meal or snack. These are nuances that just don't broadly apply to most -- and ubiquitous -- hamburger restaurant chains.
And Domino's Pizza's long-term results say as much. Removing pandemic-skewed comparisons from the mix, this company hasn't failed to grow its top line in any quarter since late 2012, growing its annualized sales from less than $1.7 billion then to nearly $4.8 billion now. Profit growth hasn't been quite as consistent but certainly as impressive. The company's 2012 net income of $113 million has since grown to nearly $600 million.
Look for more of the same going forward, too. Last quarter's total revenue growth of 5.6% and same-store sales growth of 3.4% within the all-important U.S. market bodes well for the 178 stores it opened during that three-month stretch, with the same pace of store openings anticipated for the second half of the year.
It's just a well-run company with lots of opportunity ahead of it. It's not difficult to see why Buffett and his lieutenants like it despite the stock's recent volatility and net weakness.
Axon Enterprise
Finally, I'm adding Axon Enterprise (AXON 0.32%) to my list of favorite stocks to buy now.
Unlike Walmart and Domino's, Axon shares have actually been performing very well of late, reaching a record high earlier this month thanks to a more than 100% run-up since August of last year and its nearly 800% rally from its 2022 low. I believe there's still more upside left to tap, however, and so do analysts. Their consensus price target of $888.64 is about 14% above the stock's current price. But this may be one of those cases where the analyst community could be willing to continue raising their targets as shares continue to make forward progress.
But what is it?
You may be more familiar with Axon than you realize. Ever heard of a TASER gun (which is a brand name rather than a type, by the way)? They're made by Axon. The company may be better known, however, for its body cams now commonly worn by law enforcement professionals.
Axon Enterprise also offers all the training and evidentiary software that this equipment requires if and when their usage needs to be examined during a court trial. The company even makes aerial surveillance drones when sending a person to a particular place could prove too dangerous or impractical.
Say what you want about the sociocultural reasons that the need for such tools exists in the first place. Just don't deny that the need translates into opportunity. Industry research outfit Technavio says the worldwide body-worn camera market is set to grow at an average annual pace of 19% through 2029, while Mordor Intelligence believes the directed energy weapon (stun guns, or TASER guns) business is likely to expand at an average yearly pace of more than 16% through 2030.
For Axon's part, following last quarter's top-line year-over-year growth of 33%, analysts expect full-year sales growth of 31% to $2.7 billion en route to $4.10 billion by 2027. You'd be hard-pressed to find a more promising growth prospect right now despite this stock's fairly steep valuation.
