With the official start date of summer fast approaching, it's time for investors to consider which stocks will stand to benefit from the warmer weather. As most states are returning to normal and lifting mask mandates, the demand for outdoor activities is expected to skyrocket this summer. That means more outdoor sports, more swimming, and generally more fun.
To determine which stocks will benefit the most and likely see an increase in their stock prices, I took a two-pronged approach. First, I made a list of companies that I believed stand to benefit. These companies include athletic and sporting goods stores, pool supply companies, and outdoor recreation companies. Then I ran each company through the POWR Ratings system to make sure they were rated a Buy or Strong Buy.
This way, I know that these companies passed through all of the POWR Ratings' stringent factors, indicating that they were fundamentally strong and had the potential for price appreciation. That is why I'm recommending Foot Locker, Inc. (FL), Pool Corporation (POOL), and Dick's Sporting Goods Inc (DKS) for this summer.
Foot Locker, Inc. (FL)
FL sells athletically inspired shoes and apparel. The company operates thousands of retail stores throughout the United States, Canada, Europe, Australia, and New Zealand. Store names include Foot Locker, Champs, and Runners Point, with an e-commerce business selling through Footlocker.com, Eastbay, and Final-Score.
The company has been investing in expanding its digital presence by growing its e-commerce platform and direct-to-consumer operations. For instance, it activated a Shop My Store feature on its website and added Apple Pay and Google Pay as digital payment options. This has certainly paid off as its direct-to-consumer segment generated 44.2% in sales growth in the first quarter.
FL is also looking to generate growth through its kids' and women's business and growing internationally. For instance, the company has seen strong growth in the Asia Pacific region. FL has an overall grade of A, which translates into a Strong Buy rating in our POWR Ratings system. The company has a Growth Grade of A, driven by earnings and EBITDA growth of over 30% in the past year.
Earnings are forecasted to rise 39.4% in the current quarter. The company also has a Momentum Grade of A as its stock is up over 130% over the past year. We also Value, Stability, Sentiment, and Quality Grades grades for FL, which you can find here. FL is ranked #1 in the A-rated Athletics & Recreation industry. For more top stocks in this industry, click here.
Pool Corporation (POOL)
POOL distributes swimming pool supplies and related products. The company sells national-brand and private-label products to approximately 120,000 customers. Its products include non-discretionary pool maintenance products, like chemicals and replacement parts, and pool equipment, such as packaged pools, cleaners, filters, heaters, pumps, and lights.
The company has benefited from its dominant market share that provides it cost advantages and allows the company to achieve a higher return on investment. The housing market has also contributed to the demand for its products. It sees particularly strong demand for pool maintenance supplies and construction materials.
While the company generates a substantial portion of its earnings from existing pools through maintenance and repair, POOL is looking to expand to drive more revenue. It is looking into new geographic locations, expanding in its existing markets, and launching new products to boost its market share. The company has an overall grade of B, which is a Buy rating in the POWR Ratings system.
POOL has a Sentiment Grade of B which means it is well-liked by the "Smart Crowd." While many Wall Street analysts don't follow the company, five currently rate the stock a Strong Buy or Buy. The company also has a Quality Grade of B, driven by a healthy balance sheet. POOL had $1.5 billion in cash as of the end of the most recent quarter with very little short-term debt.
For the rest of POOL's grades (Growth, Value, Momentum, and Stability), click here. POOL is ranked #25 in the same A-rated industry (Athletics & Recreation) as FL.
Dick's Sporting Goods Inc (DKS)
DKS retails athletic apparel, footwear, and equipment for sports. The company operates about 728 stores under its own name and another 126 specialty stores under Golf Galaxy and Field & Stream names. It also operates e-commerce sites, including the youth sports site Team Sports HQ. DKS carries private-label merchandise and national brands such as Nike (NKE), The North Face, and Under Armour (UAA).
The company reported stronger than expected first-quarter results, driven by strong customer demand for golf, outdoor activities, and home fitness. Its omnichannel capabilities also contributed to growth. The company has been making investments in e-commerce, technology, and store payroll to drive revenue. For instance, management wants to create the best omnichannel experience for athletes by strengthening its store network and expanding its online presence.
Its e-commerce segment rose 14% in the fiscal first quarter due to the increased customer adoption of its in-store pickup and curbside facilities. DKS has also launched two types of concept stores, OVERTIME by DICK'S Sporting Goods and DICK'S Sporting Goods Warehouse. These outlet and clearance stores offer popular athletic brands at discounted prices.
DKS has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Value Grade of B due to low valuation metrics across the board. Its trailing P/E is 10.43, while its forward P/E is only 12.94. DKS' price-to-sales ratio of 0.9 is also well below the industry average. The company also has a Quality Grade of A due to its rock-solid balance sheet.
The company has a current ratio of 1.6, indicating it has more than enough liquidity to handle short-term obligations. We also provide Growth, Momentum, Stability, and Sentiment grades of DKS, which you can find here. DKS is ranked #16 in the A-rated Athletics & Recreation industry.
FL shares were trading at $63.00 per share on Wednesday afternoon, down $0.67 (-1.05%). Year-to-date, FL has gained 56.83%, versus a 12.66% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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