Top Stock Picks for Week of May 24, 2021

Investor Tips
A Company That’s More Than a Retailer and One of Great Design

Target Corporation (TGT) has evolved from just being a pure brick-&-mortar retailer to an omni-channel entity. Shares of Target have risen and outpaced the industry in the past six months. The company has been deploying resources to enhance omni-channel capabilities, come up with new brands, refurbish stores and expand same-day delivery options to provide seamless shopping experience. The company has been making multiple changes to its business model to adapt and stay relevant in the ever-evolving retail landscape. Target’s better-than-expected first-quarter fiscal 2021 performance is the testimony of the same, wherein both the top and the bottom lines grew year over year. Markedly, comparable sales increased for the 16th straight quarter, gaining from strength in both store and the digital channel. Management envisions positive comparable sales to persist throughout fiscal 2021 with full-year operating margin rate to be well above fiscal 2020 rate. The stock has a great record of positive earnings surprises, as it hasn’t missed our earnings consensus estimate in any of the last four quarters. The company’s cash position remains sufficient to meet current portion of long-term debt and other borrowings of about $1,173 million as of May 1, 2021.

Cadence Design Systems Inc. (CDNS) offers products and tools that help customers to design electronic products. Cadence’s Q1 results gained from robust adoption of digital & signoff solutions and functional verification suite. The company is well poised to benefit from higher investments on emerging trends like Internet of Things (IoT), and autonomous vehicle sub-systems along with strength in semiconductor end-market. Frequent product launches are expected to help the company sustain top-line growth, going ahead. The company is focusing on providing end-to-end solutions, which rapidly reduces the time required to introduce a semiconductor product in the market. The company is experiencing strong demand for its software – particularly verification and digital design products – from customers providing datacenter servers, networking products and smartphones that continuous to invest in new design concepts and projects. The company raised 2021 revenue guidance on strong performance in the first quarter despite COVID-19 related headwinds. We believe that increasing spending by enterprises on emerging categories like IoT and AR/VR presents significant growth opportunity for Cadence. The Zacks Consensus Estimate for this company’s current-year earnings has been revised upward over the past 60 days.

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