2 Growth Stocks to Load Up on During a Market Correction
Over the past month, the major indices have been headed lower. With the Fed looking to tighten its monetary policy, surging bond yields and rising inflation, current conditions have caused skepticism among stock market bulls. In addition, the spread of the Covid-19 Delta variant continues to impact economies in both the U.S. and Europe, causing a slowdown in growth.
However, during a pessimistic time like this, savvy investors are provided with significant opportunities. Market corrections allow investors to buy great stocks at cheaper prices. As famed investor Warren Buffett once said, “Be fearful when others are greedy. Be greedy when others are fearful.”
Since the beginning of the year, shares of the American tech giant have rallied 4.3%, underperforming its benchmark, Technology Select Sector SPDR ETF (XLK), which has gained 13.1% year-to-date. The past month has been particularly rough for tech companies as worries of interest rate hikes have negatively impacted AAPL, leading to yet another drop in price.
On September 14th, Apple released the new iPhone 13 lineup, the Apple Watch Series 7, and two upgraded iPads. KGI Securities noted a higher than anticipated demand for iPhone 13 models amid ”positive pricing signs”. It also expects that sales for the higher-end models will constitute over 50% of total iPhone 13 revenues. In addition, Apple experienced strong demand for iPhone 13 and iPhone 13 Pro in China, with 5 million orders in the eight days since release. Taking that into account, KGI reiterated a price target for AAPL to $180.
Recent Quarterly Performance & Analysts’ Estimates
The company’s overall revenue for its fiscal third quarter, ended June 26th, 2021, has risen 36.4% year-over-year to $81.4 billion. Also, Apple surpassed the Wall Street consensus revenue projections by $7.93 billion. The tech giant reported a GAAP EPS of $1.30, beating Wall Street estimates by $0.29.
For the fourth quarter, analysts expect AAPL’s EPS to stand at $1.23, representing a 68% growth compared to the year-ago figure of $0.73. The company has topped Wall St. EPS estimates in each of the trailing four quarters. Additionally, an $84.7 billion average revenue estimate for the fourth quarter of 2021 shows a 30.9% growth year-over-year.
Additionally, Apple’s EPS are projected to lift about 70% to $5.59 in 2021, implying a forward P/E of 25.6x, which is almost in line with the sector’s median threshold of 24.19x.
Bullish Options Bets
The open interest levels for October 15th, $147.00 call options, increased modestly on October 1st. According to data provided by Barchart.com, the open interest rose by 3,867 contracts to about 7,779. A buyer of those calls would need AAPL stock to rise to $147.91 by the middle of October, which represents an upside opportunity of 3.7% from current levels.
The analysts have established a “Strong Buy” rating for AAPL, with an average price target of $169.64.
The Walt Disney Company
Year-to-date, shares of the media & entertainment conglomerate have dropped about 4%, underperforming the SPDR S&P 500 Trust ETF (SPY), which returned 14.3% over the same period. Over the past month, DIS stock fell almost 4% as economic pressures have continued to mount.
On September 21st, Disney CEO Bob Chapek said that the subscriber growth for the Disney+ streaming service would decelerate in the fourth quarter amid production delays caused by the Covid-19 pandemic. This news was followed by another considerable decline in Disney’s stock price.
Recent Quarterly Performance & Analysts’ Estimates
For its fiscal third quarter ended July 3rd, 2021, the company’s total revenue has climbed 44.5% year-over-year to $17.02 billion. Also, the company was able to beat the Wall Street consensus revenue estimates by $260 million. Besides, the company reported GAAP EPS of $0.80, easily beating Wall Street’s estimates by $0.25.
For the fourth quarter, the analysts expect DIS’ EPS to come in at around $0.45. Additionally, Wall Street expects the company’s revenue to increase by 28.1% year-over-year to $16.42 billion in the fourth fiscal quarter of 2021.
Despite the recent pullback in DIS share price, the company currently trades with premium valuations compared to the sector’s median levels. For instance, Disney’s FWD P/E Non-GAAP and FWD EV/EBITDA stand at 70.47x and 34.84x versus the sector’s median of 19.74x and 9.85x, respectively.
Favorable Options Market Sentiment
Looking at the November 19th, 2021 option chain, we can determine the options market sentiment by comparing call/put open interest levels. The number of open calls at the $180.00 strike price outweighs the puts by around 32%. Currently, there are 6,703 calls to 5,058 puts. Moreover, the calls at the $185.00 strike price outweigh the put options by about 13%, with 19,484 open calls to 17,170 open puts. A buyer of those calls would need the stock to rise to $189.50 by the expiration date, a gain of about 8% from the stock’s current price.
Wall Street analysts have established a “Strong Buy” rating for DIS, with an average price target of $217.26.