The market cycle affects more than just stocks and sectors. As investors know, during economic booms, consumer discretionary stocks tend to outperform all others, especially the ‘boring’ consumer staples names. However, there is another metric that investors should always keep an eye on as far as cycles go: the volatility index (VIX), also known as the fear index.
This index typically hovers between 12% and 20%; the lower it is, the quieter the overall stock market is, and therefore, it is harder to profit on a relatively short-term move. This is why investors would benefit from looking into a list of high-beta stocks, as these tend to move more aggressively than the market average.
Fitting this list is Carvana Co. (NYSE: CVNA), with a 3.3 beta, meaning this stock will usually move three times as much as the broader S&P 500 on any given day. Second on the list is Sofi Technologies Inc. (NASDAQ: SOFI), with its 1.7 beta, lower than Carvana, but it still offers investors a quicker ride. Last is Williams-Sonoma Inc. (NYSE: WSM), with another 1.7 beta.
Why Carvana Stock Growth Deserves an Analyst Upgrade
After a stratospheric run in the past 12 months, shares of Carvana have appreciated up to 420%, making a few millionaires along the way. After the company nearly faced bankruptcy a few years ago, management devised a brilliant strategy to convert bonds into equity, raising the stakes of its backers and relieving it from a debt burden.
Now that the company is clear of the dangers of going under, investors have a few data points to consider. The first is Wall Street analysts' forecasts for earnings per share (EPS) growth for the next 12 months. These projections are set for 70%, while competitors like CarMax Inc. (NYSE: KMX) only expect to see 18.6%.
Despite this leading growth expectations, consensus analyst price targets remain at $87.3 a share, showing a net downside of 36% from where the stock trades today. Stepping out of the norm come analysts at J.P. Morgan Chase, as they justified a valuation of $150 a share for Carvana stock, daring it to rally by nearly 10% from today’s price.
More than that, the Vanguard Group, Carvana’s largest shareholder, boosted its stake in the stock by 2.7% as of May 2024, bringing its net investment to $904.6 million today. So-called ‘smart money’ has certified that this higher beta stock is one to have during this low VIX cycle.
How SoFi Stock Benefits from the Continued Housing Boom
Even with high interest rates, the housing boom continues in states like Florida, where most of the building permits will be, even if the Federal Reserve (the Fed) data shows them to be down by 7% annually. More than that, some homeowners want to take some chips off the table and realize their capital gains.
U.S. home listings ticked up lately, and with the coming inventory injection from building permits, stocks like Zillow Group Inc. (NASDAQ: Z) have already started rallying, as that platform will be the first one to profit from connecting buyers and sellers.
After Zillow is done with its part of the real estate cycle, it’s time for SoFi to come in and provide financing for these closed listings. For this reason, analysts at Deutsche Bank and Citigroup see a price target of $11 a share for SoFi stock, daring it to rally by 67% from where it trades today.
Riding on these trends and the high beta to beat a low VIX, the Vanguard Group also allocated more of its investors’ capital to this stock, boosting its position by 1.7% as of May 2024. Today, Vanguard’s net investment is $604.6 million. A
Why Williams-Sonoma Stock Can Rebound and Reach New Highs
After a recent sell-off, shares of Williams-Sonoma are now trading at 83% of their 52-week high price. Considering this, investors must check whether the stock’s potential upside is high enough to justify its higher volatility today.
Those at Telsey Advisory Group think that Williams-Sonoma stock could rise to $340 a share, while Wedbush analysts think that it could actually go to $350 a share. These targets would represent a respective upside in the stock of 17.8% up to 21.2% from where it has retreated to today.
These valuations are supported by the fact that after SoFi is done closing mortgages and delivering new homes, Williams-Sonoma will be in the middle of a new furnishing demand cycle, as new homeowners likely need all of the home accessories that Williams-Sonoma has to offer.
Knowing this, short sellers have started to retreat from the stock. Williams-Sonoma stock’s short interest has declined over the past two consecutive quarters, signaling that the stock’s decline may be over, and a potential new all-time high could now be underway.