Lowe's (LOW) was keeping pace with the S&P 500 until last week's second quarter earnings miss knocked 6% off the home improvement retailer's stock. Brian Milligan, portfolio manager for the Ave Maria Growth Fund (AVEGX) , believes any short-term setback will be temporary.
Lowe's posted earnings of $1.37 per share in its second quarter, well below analysts' estimates of $1.42 per share. Sales of $18.3 billion for the period also missed forecasts of $18.4 billion. Same-store sales rose 2%, but fell short of estimates for a 4.1% increase. The home improvement retailer cut its full-year outlook to $4.06 per share from $4.11 per share.
"Consumers are investing more in their homes and Lowe's and Home Depot are poised to take advantage of that trend," said Milligan. "It's a big tailwind."
The Ave Maria Growth Fund is up 13% thus far in 2016, according to Morningstar. The $354 million fund has returned an average of 11% annually over the past three years, outpacing 79% of its peers in Morningstar's mid-cap growth category.
Graco (GGG) , up 2% year-to-date, is another one of Milligan's top picks. The fluid dispenser maker fell almost 10% last month after it missed Wall Street's second quarter earnings estimate by a dime per share. Nevertheless, Milligan said it "has no real competition" and a strong management team that will also overcome this bump in the road.
Milligan is also bullish on Cognizant Technology (CTSH) , which has seen its shares drop 4% so far in 2016. Earlier this month the company reported better-than-anticipated earnings for the 2016 second quarter, but gave a weak third-quarter earnings per share forecast of between 82 cents and 85 cents on revenue of $3.43 billion to $3.47 billion. Analysts are looking for earnings of 86 cents per share on revenue of $3.54 billion.
"Cognizant's health care and financial verticals hurt them in the second quarter but they will recover," said Milligan.
Finally, Milligan is positive on Sally Beauty (SBH) , down 50 basis points in 2016, calling the beauty supplier "recession resistant" as it continues to buy back stock.