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This story originally appeared on MarketBeat
In what has been another magical year for U.S. stocks, there has been broad participation in the record setting run. All 11 S&P 500 sectors are up year-to-date led by groups that were the hardest hit during the pandemic-led bear market. The energy, real estate, and financial sectors have all advanced by roughly 30%.
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At the individual stock level, there have been some incredible returns. Whether fueled by sharp recoveries in demand or meme stock rallies, many companies have watched their share prices double, triple, or more.
Yet lofty valuations and recent tales of caution from Wall Street firms regarding a potential market correction has some traders on edge about what, if anything, to buy. Sometimes the best strategy is to simply go with what’s been working.
These are three big 2021 winners whose magic carpet rides have bigger travel plans.
Is it a Good Time to Buy Matador Resources?
After shedding one-third of its market value in 2020, Matador Resources (NYSE: MTDR) is up 156% this year. Led by the sharp recovery in crude oil prices, the oil and gas producer has repeatedly produced better than expected quarterly profits. Second-quarter earnings per share (EPS) of $1.02 marked a dramatic turnaround from the $0.03 per share loss from the year prior.
The fight is far from over for Matador. Its presence in the oil-rich Permian Basin, one of the nation’s best energy plays, has it in a position for further bottom-line growth. Management’s aggressive cost-cutting initiatives and full-year production target of up to 31 million barrels has the Street expecting record profitability for 2021—and an even greater performance next year.
Despite the gushing year-to-date return, Matador Resources is still undervalued. It is trading around 8x forward earnings which is below the industry average and dirt cheap for a company with its growth profile. Exposure to one of the country’s top oil & gas plays along with a healthier oil price environment make Matador a slick momentum play.
Is it Too Late to Buy Dillard’s Stock?
Department store chain Dillard’s (NYSE: DDS) has more than tripled this year and is up nearly tenfold from its 2020 bottom. Within that span, the company has trounced consensus earnings expectations for five straight quarters. Last quarter’s astounding $8.81 adjusted EPS figure confirmed the strength of the U.S. consumer and that management’s cost control initiatives are working extremely well.
Dillard’s will keep working for momentum investors because the stock is surprisingly inexpensive. At 8x forward earnings there is still room for multiple expansions to bring the surging retailer in line with its peer group average. It can also be argued that Dillard’s deserves a premium valuation given its top-line growth and rapidly expanding gross margins.
With 280 locations across 29 states, Dillard’s stores are seeing strong customer traffic swooping in to buy quality brand name apparel and home furnishings under one roof. A growing online storefront and industry-leading inventory management practices also have the company in a favorable position. It may feel like chasing performance to enter Dillard’s here, but there doesn’t appear to be anything slowing this runaway train.
Is JAKKS Pacific a Good Momentum Play?
After enduring a five-year losing streak through 2020, JAKKS Pacific (NASDAQ: JAKK) has rebounded 151% this year. The toy manufacturer has been able to turn things around due to a combination of astute steps. Partnerships with popular movie franchises, international expansion, and clever M&A activity have it on a course to return to profitability in 2022.
In a quickly evolving consumer shopping landscape, JAKKS is also benefitting from an improved e-commerce business which has grown to represent about one-fifth of total sales. The company has become more active across social media and other digital marketing platforms to better connect with the modern consumer. And to better align its offerings with children’s tech-forward preferences, JAKKS Pacific is launching more and more digital games and electronic learning products.
In the weeks ahead, JAKKS Pacific will be leaning on its Halloween division to drive another consensus beating quarter. With North American neighborhoods expected to see more trick-or-treating this year, sales of Halloween costumes and decorations are likely to rebound from a dismal 2020 performance.
For the current quarter, JAKKS Pacific’s historically best period, analysts are expecting EPS of $3.48. While much will depend on pandemic developments heading into Halloween, with the Street having significantly missed the mark in each of the last three quarters, another sizeable earnings beat could spark the next leg in the rally.
As a micro-cap stock that underwent a reverse 10-for-1 split last summer, JAKKS Pacific isn’t appropriate for every investor. Risk-bearing investors shouldn’t be scared though as the stock remains one of the most underappreciated plays on the recovery in global consumer spending. JAKKS Pacific is currently trading $3.00 off its August 2021 peak—and with the all-important Halloween season still ahead, momentum traders may be in for a big treat.