3 Top Quality Stocks to Buy: Swelling Valuations and Growth Potential

Stocks to buy

Look beyond technology stocks, and there are plenty of bargains to be found in the market right now. Because the rally in equities this year has been highly concentrated in only a few tech names, many top-quality stocks are undervalued and primed for a breakout. Lots of notable names have been left out of the current bull run and have yet to recover from the bear market of 2022. That allows investors to buy stocks of companies whose valuations are only now starting to improve and have plenty of growth potential ahead. Investors should take positions now before the market rally broadens and they miss the move higher. Here are three top-quality stocks to buy with swelling valuations and growth potential.

Dick’s Sporting Goods (DKS)

Source: Jonathan Weiss / Shutterstock.com

Retailer Dick’s Sporting Goods (NYSE:DKS) just redeemed itself with strong third-quarter financial results and an upbeat outlook. The company’s stock popped 8% higher after it issued a Q3 print that beat Wall Street estimates across the board. Dick’s announced earnings per share (EPS) of $2.85 versus $2.44 that was expected. Revenue amounted to $3.04 billion compared to $2.94 billion forecasted among analysts. Sales were up nearly 3% from a year ago.

The latest quarter was a big reversal for the sporting goods retailer. When Dick’s reported its previous Q2 results, its stock plummeted 24% after it blamed theft for a 23% profit decline. But now, Dick’s says it’s “excited” for the holiday shopping season and that it benefitted from strong back-to-school sales this year. Looking ahead, Dick’s expects EPS of $11.45 to $12.05 for all of this year, up from previous guidance of $11.27 to $12.39. The company also raised its comparable sales outlook to between 0.5% and 2%.

DKS stock is up 1% this year and up 250% over five years — definitely a quality stock with growth potential.

United Airlines (UAL)

Source: Shutterstock

It may have gone unnoticed by many investors, but airline travel in the U.S. is back — big time. Seven of the 10 busiest airline travel days in American history have occurred in the last 6 months. Now, the Transportation Security Administration (TSA) that screens passengers at U.S. airports is gearing up for what it expects to be a record Thanksgiving travel weekend, with more than 30 million people passing through U.S. airports for the annual holiday.

That makes it a good time to buy the stock of a U.S. airline. And among the batch, United Airlines (NASDAQ:UAL) is a standout. For its part, United says it is preparing for record travel volumes over the Thanksgiving weekend, with plans to fly nearly six million passengers around the country. Beyond the holiday travel, United Airlines posted Q3 financial results that crushed Wall Street forecasts, and it expects its revenue in the current fourth quarter will rise year-over-year between 9% and 10.5%.

UAL stock is up 6% year-to-date but is currently trading just above a 52-week low it hit on Oct. 27 when its share price fell over concerns related to its canceled flights to Israel. Buy the dip!

Home Depot (HD)

Source: Jonathan Weiss / Shutterstock.com

Like Dick’s Sporting Goods, Home Depot (NYSE:HD) is a retailer that reported standout Q3 results that have sent its share price higher. The home improvement retailer beat Wall Street expectations on the top and bottom lines, announcing EPS of $3.81 versus the $3.76 forecast by analysts. Revenue totaled $37.71 billion, besting estimates of $37.60 billion. While comparable sales fell 3.1% from a year ago, the decline wasn’t as steep as the 3.6% expected.

As has become its pattern, Home Depot offered cautious forward guidance and trimmed its outlook, saying it now expects that its sales will fall by 3% to 4% and EPS to come in 9% to 11% lower than in the fourth quarter of 2022. The company said it continues to face challenges such as high mortgage rates and high inflation that have led homeowners to put off big-ticket purchases and renovation projects. However, Home Depot has a track record of underpromising and over-delivering.

HD stock is down 3% this year but has gained 80% over the last five years and is up 286% in the past decade.

On the date of publication, Joel Baglole did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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