The jobs data from last week was the proverbial final nail in the coffin as it probably sealed a Federal Reserve rate increase hike this week, which should move to the 0.75% to 1.00% area. Long-time investors know this is still absurdly low, and most strategists on Wall Street feel there will be two more rate hikes behind it this year. Rates are raised to combat inflation, which for years has been nonexistent, but with wages finally slowly rising and jobs returning, companies now can raise prices, and that spells inflation.
A recent Jefferies research report fully acknowledges the damage inflation can inflict on the economy and specifically the stocks the firm covers. It did however offer up 24 stocks that should perform better despite an increase in the inflation rate. We screened the list for five that are rated Buy and that offer investors solid upside from current trading levels.
Fogo de Chao
This was a hot summer initial public offering in 2015, and the stock has been cut in half since coming public. Fogo de Chao Inc. (NASDAQ: FOGO) is a leading Brazilian steakhouse, or churrascaria, which has specialized for more than 36 years in fire-roasting high-quality meats utilizing the centuries-old Southern Brazilian cooking technique of churrasco. Fogo delivers a distinctive and authentic Brazilian dining experience through the combination of high-quality Brazilian cuisine and a differentiated service model known as espeto corrido (Portuguese for “continuous service”) delivered by gaucho chefs.
Jefferies loves the unique concept and feels like the stock has been hammered to some degree by issues in Brazil. With the business growing, new restaurants opening and the tough comparisons over, the stock offers tremendous value at current levels.
The Jefferies price target for the stock is $17. The Wall Street consensus target is $14.50. Shares closed Monday at $13.95.
This stock has been hit hard over the past year and may be offering investors an outstanding entry point. Nike Inc. (NYSE: NKE) is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities.
Wholly owned Nike subsidiaries include Converse, which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories. With one of the most recognizable brands in the world, long-term investors may do very well adding shares here despite the big move up in the stock this year.
Nike is benefiting from consumer preferences for “athleisure.” With its extensive product line and recognizable worldwide branding, the stock continues to roll year after year. Driven by its digital business as well as inline and factory stores, Nike now anticipates achieving $16 billion in revenue by the end of fiscal year 2020.
This is a top pick at Jefferies, which noted in the report:
We reiterate Nike as our top pick for 2017 given its solid log term growth story, driven by resurgence in basketball recently and initiatives to scale women’s and international. We also see significant margin opportunity as it relates to growing direct-to-customer penetration, rising average-selling-prices, and manufacturing efficiencies. When we consider the potential impact of rising wages on our coverage universe, we prefer names that have significant pricing power, and for that reason, Nike comes to mind. With unmatched brand resonance (that is strengthening), we believe Nike is better-positioned than others in a rising wage environment.
Investors receive a 1.27% dividend. Jefferies has a $65 price target. The consensus target is $62.04. Nike closed at $56.67 on Monday.