STOCK UPDATE: 10.02.22
When it Comes to the Stock Market, Don’t Fight the Fed
Interest rates have been soaring due to Fed rate hikes in an all-out war on inflation. The Fed’s recent raise of interest rates by another 0.75% at their September meeting has sent treasury bond interest rates and general borrowing rates soaring, making it more expensive for individuals and corporations to borrow money. Less cash in circulation means less demand from consumers and the outcome will be lower prices of goods and services.
Less borrowing due to higher rates means there is less money to invest in the stock market. As well as sending the S & P 500 stock index to 3600, its low for the year as investors flee. Higher interest rates on debt instruments, such as treasuries, make it enticing for investors to pull stock market capital and re-deploy that capital into the debt market.
But, some stocks that were good values before the downturn in the stock market are an even better value now.
LULULEMON ATHLETICA INC (NASDAQ: LULU)
Share Price: $304.74
Market Cap: 38.8B
Background: Founded in 1998, Lululemon Athletica Inc. designs, distributes, and retails athletic apparel and accessories for women and men in both company-operated stores and direct to consumer. In the beginning of 2002, it operated 574 company-operated stores under the Lululemon brand in total, inside and outside the United States.
Current News: Brand recognition. Generations of people know Lululemon. The inventory (supply) cannot keep pace with the demand for the brand! This stock is a bargain, trading at $304.74 – the low end of the 52 week trading range of $251.51-$485.83. Lululemon has an historical earnings growth rate of 28%. This year's growth rate (26.7%) dwarfs its peers who are at an average of slightly negative growth rates. When the stock market rebounds, Lululemon will outperform its peers and the broader market given its high growth rate and depressed stock price.
Recommendation: Strong buy recommendation