Trading Nation

Beaten-down consumer stocks with high growth potential: Traders share their picks

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Beaten-down consumer stocks with growth potential: Traders share their picks

With so much uncertainty heading into the homestretch of the year, two market analysts shared their top stock picks with "Trading Nation."

The catch? Their selection had to fulfil three requirements:

  • A stock at least 20% off 52-week highs
  • Have high growth potential
  • Depend on the consumer.

Mark Tepper, president at Strategic Wealth Partners, highlighted a smaller cap stock in the tech space.

"The company I like here, it's just barely over $1 billion market cap, the name is Glu Mobile, and they're a top-tier mobile game developer and publisher. They've got big titles like Call of Duty, there's a Kardashian game if you're into that, WWE wrestling," Tepper said Tuesday.

Glu shares have fallen roughly 24% from a July peak. However, the stock has risen more than 100% from a March low.

"There's still a lot of demand there. Their 2021 slate looks extremely strong. We're expecting earnings growth of 25% to 30% per year for the next several years. And when you look at the valuation metrics that are important for this particular industry, the stock is trading at about a 40% discount to its mobile peers," said Tepper.

He added that the stock could climb up toward the $10 to $12 range. It closed Tuesday at $8.28. Tepper's target implies 21% to 45% upside.

Craig Johnson, chief market technician at Piper Sandler, scoured the consumer apparel industry for inspiration.

"We've taken a look at Kontoor Brands," he said during the same "Trading Nation" segment, calling the Lee and Wrangler parent a turnaround story. "When you look at the stock, it looks like you get almost 20% top-line growth, and you've got closer to 52% bottom-line earnings growth right now."

The charts also point to more upside, Johnson said. The stock, which has fallen 36% since January highs, is close to seeing its 50-day moving average climb back above its 200-day moving average — a bullish technical sign known as a golden cross.

"Kontoor Brands is outperforming the consumer discretionary sector on a relative basis, and from our perspective on this breakout here, it looks like this stock could go back and retest the old highs we saw back in [January] of 2020," said Johnson.

Kontoor traded as high as $43.24 on Jan. 7. It would need to rally 56% to reach there from its current price of $27.66.

Disclosure: Strategic Wealth Partners holds GLUU.

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