"Dislocated high-quality stocks" (DHQs) refers to high-quality companies that have traded off 20-30% from their recent highs, especially those that trade at a discount to their growth rates. When these high-quality companies become dislocated and trade at a discount to their growth rates, that presents an opportunity for investors to buy them at an attractive valuation. The goal is to "hunt for dislocated high-quality stocks" – find the best companies when their stock prices have temporarily pulled back, in order to mitigate both fundamentals risk and valuation risk.
These are the companies I think fit the bill and warrant consideration for investment:
LULU – Lululemon, a luxury athleisure company, is down 33% from recent high after earnings that beat top and bottom lines. Growth in the U.S. market slowed from the year ago period but accelerated in international markets. Management lowered sales guidance to 10.7-10.8 billion for the year compared to estimates of 10.9 billion. Fwd PE is 24, compared with five-year average 42.7. The company is expected to grow 14.4% this year and 15% next. out of 34 analysts, 25 have buy ratings, 6 have hold ratings, with 3 sell ratings. Avg price target is $471, currently trading at $343.
ZS – Zscaler, a cybersecurity platform, is down 32% from recent high after top and bottom beat and FY guidance raise, but the quarter showed some growth deceleration, however RPO growth offers assurance that spending with ZS remains healthy. Expected revenue growth of 30% this year and 25% next year. Fwd PE is 65, as the company has just achieved profitability, and price to sales is 14.4, a discount to five-year average of 18.5. Out of 44 analysts covering, 34 have buy ratings, 10 hold, and 0 sell ratings. Avg street target is $264.00, currently trading at $174.
PANW – Palo Alto Networks, another cybersecurity platform, is down 26% from recent high. Earnings also beat top and bottom lines but management lowered FY guidance in a “push for platformization” aka getting clients to bundle their different cybersecurity products together, and letting them use them for free until their contracts with other cybersecurity firms expire to make it more cost effective for clients to switch. Revenue expected to increase 16% this year and next year. Fwd PE is 50. Out of 49 analysts covering, there is 35 buy ratings, 14 hold ratings and 0 sell ratings. Avg price target of $337, company trades at $277.
Do with this information what you will, and of course do your own due diligence. I hope I provided some meaningful information to help inform your investing decisions and provided value with this research. I personally have conviction in these names and own them all myself.
