A fascinating phenomenon is currently unfolding in the world of stock market fluctuations: growth stocks are plummeting. If you’re a savvy long-term investor, you’re well aware that bear markets have a hidden silver lining: they reveal incredible buying opportunities. a massive clearance sale in which otherwise promising stocks are available at unbeatable prices.
It’s a show that shines especially brightly in cyclical industries like industrials, where patient investors with a longer time horizon can reap the benefits of an eventual economic recovery. So, if you’re looking for 2 such stocks that look reasonably priced at the moment, buckle up and keep reading.
I. CarParts.com
Prepare yourself for a fascinating stock story that has largely gone unnoticed! Meet CarParts.com, a small-cap e-commerce gem that saw an electrifying surge during the pandemic thanks to explosive growth in online car parts sales and DIY repairs.
The intriguing part is that, despite its phenomenal success, CarParts.com continues to fly under the radar of most investors. What is the secret to its success? It all began when a dynamic new management team stepped in and revitalized the company. They embarked on a transformational journey, renaming the company CarParts.com instead of U.S. Auto Parts Network. But that was just the start.
CarParts.com embarked on an audacious expansion plan after receiving a new identity. They strategically opened new warehouses across the country, ensuring that the vast majority of the country could benefit from lightning-fast two-day shipping, if not faster. Talk about bringing convenience to the customers’ doorsteps!
Prepare to be immersed in the fascinating world of the auto parts industry, where digital transformation has been slower than anticipated due to some unique challenges. One of these impediments is the vast number of individual stock-keeping units (SKUs) that comprise the complex world of car parts. Managing such a diverse inventory has proven difficult, and the sheer size of some parts adds another layer of complexity to the shipping process.
But don’t worry, because there is one shining star that has distinguished itself in this ever-changing landscape—CarParts.com. By offering its own private-label products, this visionary company has carved out a distinct niche, effectively undercutting the competition on price. What is their hidden weapon? A strong base of do-it-yourself (DIY) customers who value CarParts.com’s quality and affordability.
CarParts.com, on the other hand, is not content to sit on its laurels. It has set its sights on expanding into the do-it-for-me (DIFM) category, a risky move that demonstrates its dedication to meeting customer needs. How do they do it? Through an innovative pilot program, we created strategic partnerships with mechanics.
Customers may now order the parts they need from CarParts.com and conveniently deliver them to the professionals who work with them for hassle-free installation. It benefits both parties and appeals to a wider group of vehicle enthusiasts.
Let’s talk numbers now. If you’re a long-term investor, don’t allow the first quarter earnings report from CarParts.com deter you. It might not set off any immediate pyrotechnics. Although there weren’t many pyrotechnics, the company nevertheless produced good results. The revenue increased admirably by 6% to a staggering $175.5 million. Also remaining constant at $9.4 million was adjusted profits before interest, taxes, depreciation, and amortization (EBITDA).
Enter the alluring world of CarParts.com, where enticing investment opportunities exist despite issues like inflation and a depressed economy. The management team was upfront about the impact of these challenges, especially when their lower-income clientele’s purchasing patterns tightened.
Don’t let that discourage you, though; after a recent downturn, this company is again selling at an alluring price of about 10 times adjusted EBITDA.
CarParts.com is poised to unleash a wave of accelerated growth once the economic tides turn and the recovery gains traction. How will they accomplish this? They have a number of initiatives in the works, including their enticing do-it-for-me approach and an expanding network of strategically located warehouses. These strategies are intended to serve a broader range of customers while also facilitating streamlined operations and efficient delivery.
Let’s get into the investment opportunity now. With the current share price reflecting the prevailing macroeconomic headwinds, astute investors see significant upside potential in the long run. With its appealing valuation and promising growth trajectory, this compelling stock represents a golden opportunity that should not be passed up.
II. XPO (NYSE: XPO)
Prepare for an enthralling transformation story in the transport and logistics industry. XPO (NYSE: XPO) has undergone a remarkable slimming-down process, emerging as a focused and dynamic player in the less-than-truckload (LTL) space.
The transformation began in 2021, when XPO made the bold decision to spin off its contract logistics arm, GXO Logistics. This strategic decision drew enthusiastic applause from the market, signaling a shift towards releasing the company’s hidden value. XPO, however, did not stop there. Building on its initial success, it went on to execute yet another spin-off, this time separating its truck brokerage division, which is now rebranded as RXO.
Former CEO Brad Jacobs, on the other hand, was determined to show that XPO had been unfairly undervalued, and he had a point. The business had become overly complex as a result of multiple acquisitions made over the previous decade. XPO gained clarity and focus by transforming into a pure-play LTL carrier. It now stands shoulder to shoulder with direct market peers such as Old Dominion Freight Line and Saia, providing investors with clearer benchmarks for comparison.
The market has been enthralled by XPO’s recent success as it embarks on an exciting journey to optimize operations, broaden its reach, and boost profitability. After Dave Bates’ appointment as the new Chief Operating Officer was announced, the stock shot up, sparking the excitement. Bates brings to XPO a wealth of knowledge from his amazing 27 years at Old Dominion, which is widely recognized as the top in the LTL business. His entry into the organization marked a significant improvement after he spent the previous 12 years managing daily operations in North America.
XPO won yet another round of well-deserved praises earlier this month after reporting outstanding first-quarter profitability amid a tough market. While macroeconomic challenges resulted in a 1% rise in revenue, representing a 1.8% decrease in tonnage per day, XPO demonstrated its strength by obtaining an impressive 2.4% pricing increase. This accomplishment was made possible through increased customer satisfaction, greater on-time rates, and a decrease in breakage incidences. As a consequence, adjusted EBITDA increased by 14% to reach $210 million.
Aiming for a compound annual growth rate of 11% to 13% in adjusted EBITDA through 2027, XPO has set lofty long-term goals. Additionally, the business targets compound annual sales growth of 6% to 8% and aims to increase its adjusted operating ratio by at least 600 basis points. Given the lofty objectives set forth, it is understandable why the stock is now selling for less than 7 times run-rate EBITDA.
Reference- motleyfool.com
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