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Home Depot (NYSE: H.D.) stock lost 6% of its value on Feb. 20 after the home improvement retailer suggested its 2023 revenues would be flat year-over-year due to restrained consumer spending due to persistent inflation. If you’re Warren Buffett, it instantly became one of the stocks to buy due to investor overreactions.
“Our ability to deliver growth on top of the $40 billion of sales growth achieved over the prior two-year period while navigating persistent inflation, ongoing global supply chain disruptions, and a tight labor market is a testament to investments we have made in the business, as well as our associates’ relentless focus on our customers,” stated CEO Ted Decker.
Home Depot didn’t miss Q4 2022 estimates. On the top line, it had revenue of $35.83 billion, $140 million less than the consensus, plus earnings per share of $3.30, two cents higher than analyst expectations. But plenty of other well-known businesses did.
If you’re considering making a contrarian bet, these three stocks to buy missed analyst estimates for the third quarter, but are definitely worth buying.
Mid-America Apartment Communities
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First on this list of stocks to buy is Netflix (NASDAQ:NFLX), which reported its Q4 2022 results on Jan. 19. On the top line, revenue came in at $7.85 billion, flat on a year-over-year basis. However, on the bottom line, it earned 12 cents per share, 33 cents worse than the Refinitiv consensus.
After such a big earnings miss, you would think the share price would drop in value. However, the opposite occurred, as NFLS stock gained nearly 17% in the week following its earnings release. The significant decline in earnings had to do with a $462 million non-cash unrealized loss on its Euro-denominated debt in the quarter due to the depreciation of the U.S. dollar versus the Euro.
In reality, Netflix added 7.66 million subscribers during the fourth quarter, 3.09 million higher than analyst expectations. But, more importantly, the company said that it didn’t see much switching of plans by customers, which means few customers to date are moving down to a cheaper, ad-supported tier.
Netflix is confident that its ad-supported tier can contribute significantly to its overall revenue without affecting its premium plans. CFO Spence Neumann said as much in comments made during its Q4 2022 conference call.
“[W]e wouldn’t be getting into this business, obviously, Reed, as you know, if it couldn’t be a meaningful portion of our business,” Neumann stated. “So, we’re over 30 billion in revenue, almost 32 billion in 2022. And we wouldn’t get into a business like this if we didn’t believe it could be bigger than at least 10% of our revenue and hopefully much more over time in that mix as we grow.”
Trading at 4.53-times sales, its valuation remains attractively lower than it’s been since 2014.
Mid-America Apartment Communities (MAA)
Mid-America Apartment Communities (NYSE:NFLX) reported its Q4 2022 results on Feb. 1. On the top line, its revenue was $527.97 million, nearly $2 million lower than the consensus estimate. However, the multi-unit residential real estate investment trust (REIT) generated $2.32 a share in funds from operations (FFO), five cents better than the analyst estimate.
Overall, the REIT’s fourth-quarter results were generally better than expected.
“As the broader economy adjusts to a higher interest rate environment, we believe that MAA is well positioned to capture another year of solid performance from our existing portfolio. Supported by a strong balance sheet, the company can also capture new growth opportunities that we believe will likely emerge,” stated CEO Eric Bolton in Mid-America’s press release.
I included MAA in a January article about buying seven REITs that will be big winners in 2023. My rationale for Mid-America is that it targets young, single, high-income professionals who primarily live in Sunbelt U.S. cities such as Atlanta, Dallas, Tampa, Charlotte, and Orlando.
As the CEO mentioned, it has a strong balance sheet, with total debt to adjusted total assets of just 28.4% and net debt of 3.71-times adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Dividend investors will like it’s paid a dividend for 116 consecutive quarters (29 years). For 2023, it expects to grow its adjusted funds from operations (AFFO) by $8.16 a share at the midpoint of its guidance.
MAA trades at 20.1-times its 2023 AFFO.
SVB Financial (SIVB)
Source: fizkes / Shutterstock.com
My favorite U.S. bank is suffering a mid-life crisis. No, not really. SVB Financial (NASDAQ:SIVB) operates a banking business heavily tied to the tech industry. Unfortunately, that means lower revenues and profits across the board, but I think this is still among the top stocks to buy, for good reason.
The bank holding company reported Q4 2022 results in mid-January that missed the analyst estimate for earnings by 65 cents. Analysts were expecting $5.27 a share. It earned $4.62 a stake in the fourth quarter, 26% lower than a year ago.
There was some good news. SIVB’s revenue in the quarter was $1.54 billion, $50 million higher than the Zacks Consensus Estimate for the top line.
As I said, the company does business with innovators, entrepreneurs, venture capital and private equity firms, and everyone else that makes Silicon Valley and other tech-heavy regions tick.
CEO Greg Becker’s Q4 2022 shareholder letter painted an optimistic tone despite the challenging banking environment for a company focused on innovation.
“We have seen four consecutive quarters of declining V.C. investment, but the pace of decline appears to be slowing. U.S. V.C. investment dollars, at $238 billion – while 30 percent lower than 2021 – were higher than in any other year,” Becker stated.
Down 53% over the past year, under $300, SIVB is an excellent long-term buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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