Lloyds
Banking Group PLC (ticker: LYG) - Lloyds Banking Group is a
diversified bank and insurance provider based in the U.K. Analyst Niklas Kammer
says rising interest rates helped boost Lloyds' net interest income 10% in the
first quarter, and he says the bank will fare well in a higher-rate environment.
In fact, Lloyds' net interest margin grew from 2.54% in the fourth quarter of
2021 to 2.68% in the first quarter of 2022. Unfortunately, the downside to
rising interest rates is the possibility of slowing loan growth. Morningstar
has a "buy" rating and $3.70 fair value estimate for LYG stock, which
closed at $2.24 on June 1.
Mizuho
Financial Group Inc. (MFG) - Mizuho Financial is one of Japan's
three largest financial services companies. Analyst Michael Makdad says banks
have been battling a difficult environment in Japan for years now thanks to
deflation and persistently low loan demand. Makdad says the Japanese banking
climate will likely continue to be challenging for the foreseeable future, but
Mizuho has significantly expanded its international business in the past
decade. In addition, he says Mizuho's relatively small consumer finance and
credit card operations give it greater digital flexibility than its top
competitors. Morningstar has a "buy" rating and $2.85 fair value
estimate for MFG stock, which closed at $2.31 on June 1.
Nomura
Holdings Inc. (NMR)- Nomura
is Japan's largest investment bank and brokerage. In the first quarter, Makdad
says Japanese retail investors dialed back their market activity amid concerns
over an uptick in volatility driven largely by inflation concerns and the war
in Ukraine. In fact, Nomura's retail segment revenues were down 19% compared to
the fourth quarter of 2021. Nomura's wholesale securities business helped pick
up the slack. In addition, Makdad says Nomura has built a valuable brand and
reputation for investment product competency among high net worth clients in
Japan. Morningstar has a "buy" rating and $5 fair value estimate for
NMR stock, which closed at $3.90 on June 1.
Rolls-Royce
Holdings PLC (RYCEY) - Rolls-Royce Motor Cars Ltd. is now a
wholly owned subsidiary of BMW, but Rolls-Royce Holdings PLC designs and
produces power systems used in aviation and other industries. Analyst Joachim
Kotze says Rolls-Royce Holdings has potential long-term growth drivers in its
electric planes and small modular nuclear reactors business segments.
Unfortunately, the company is still a long way from being commercially viable
in those growth markets. For now, Kotze says Rolls-Royce's medium-term outlook
hinges on recovery of its civil aerospace segment, which has benefited from the
global lifting of pandemic travel restrictions. Morningstar has a
"buy" rating and $1.40 fair value estimate for RYCEY stock, which closed
at $1.14 in over-the-counter markets on June 1.
Tencent
Music Entertainment Group (TME) - Tencent Music
Entertainment is a leading online music platform in China and is the owner of
popular apps QQMusic, Kugou Music, WeSing and Kuwo Music. Tencent Music's stock
price is down more than 75% in the past year amid dual crackdowns on
U.S.-listed Chinese stocks by U.S. regulators and on big tech stocks by Chinese
regulators. Analyst Ivan Su says crackdowns weighed on Tencent Music's
first-quarter social entertainment services segment, but the company's
subscription revenue growth could create valuation upside. Morningstar has a
"buy" rating and $8 fair value estimate for TME stock, which closed
at $4.11 on June 1.
Tilray
Brands Inc. (TLRY) - Tilray is a Canadian legal cannabis
producer that also operates in the U.S., Europe and Latin America. Cannabis
stocks have been pressured since early 2021. There has been very little
progress toward U.S. cannabis reform, even with Democrats controlling the White
House and both houses of Congress. Analyst Kristoffer Inton says Tilray is one
of the few Canadian cannabis producers that has been consistently profitable in
a difficult Canadian market, and he says the company's expansion into Germany
has been a major success. Morningstar has a "buy" rating and $14 fair
value estimate for TLRY stock, which closed at $4.18 on June 1.
Cronos
Group Inc. (CRON) - Cronos is another major Canadian cannabis
producer that operates in five different continents. Inton says Cronos
significantly reduced its losses in the first quarter after taking aggressive
cost-cutting measures. In addition, he says Israel was a major growth driver, with
sales up 260% to $9 million in the quarter. Inton says Cronos broke its pattern
of widening losses in the first quarter. Gross margins flipped from negative
23% in the fourth quarter to positive 28% in the first quarter of 2022, and
losses narrowed 50% from a year earlier. Morningstar has a "buy"
rating and $5 fair value estimate for CRON stock, which closed at $2.86 on June
1.
Aurora
Cannabis Inc. (ACB) - Aurora Cannabis is yet another Canadian
legal cannabis producer that has taken a beating in recent years. Inton says
Aurora's cost-cutting initiatives have paid off in the past few quarters.
However, a nearly 30% sequential drop in adult-use revenue and 14% sequential
decline in medical revenue in the most recent quarter were disappointments.
Inton says adult-use sales declines stem from overall demand weakness and
market share losses. He says Aurora has significant potential valuation upside
but may only be appropriate for investors with extremely high risk tolerance.
Morningstar has a "buy" rating and $7 fair value estimate for ACB
stock, which closed at $1.57 on June 1.
The
RealReal Inc. (REAL) - The RealReal is a digital marketplace that
specializes in secondhand luxury consignment sales. Analyst Sean Dunlop says
resale is the fastest-growing segment in the struggling apparel market, and
elevated mobile commerce volume and growing home delivery infrastructure are
significant tail winds. Given that the luxury apparel resale space has
historically been "chronically underserved," Dunlop projects global
apparel resale will represent a $301 billion global market by 2031. In the near
term, The RealReal will continue to face pressures from inflation, rebounding
brick-and-mortar sales and difficult year-over-year comparisons. Morningstar
has a "buy" rating and $13.30 fair value estimate for REAL stock,
which closed at $2.96 on June 1.
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