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2 Top Stocks to Buy Before They Rebound

Everybody loves a good sale, and investors especially appreciate finding great companies at apparently favorable prices. That bargain-hunting strategy comes with risk: Some stocks are cheap for good reason, and many of us have tried to catch a falling knife. But these two stocks have a lot of positives and appear poised to rebound after hitting speed bumps recently. Here's why you should take a closer look at AutoZone (NYSE: AZO) and Duluth Holdings (NASDAQ: DLTH).

Do it for me!

Most of us have visited an AutoZone store, and likely even purchased something for our vehicles there. But in case you're unaware, AutoZone is the nation's leading retailer and leading distributor of replacement parts and vehicle accessories -- it has more than 5,000 stores, primarily located in the U.S., Puerto Rico, Mexico, and Brazil. And until just recently, its stock has been a phenomenal investment.

AZO data by YCharts.

One of the bright spots, as shown in the graphic above, is that AutoZone is seriously committed to returning value to shareholders by repurchasing its stock. Its level of outstanding shares is a fraction of what it was a decade ago, making each share you hold long-term increasingly more valuable. Since it begin its share buyback program way back in 1998, AutoZone has authorized $18.7 billion in repurchases, and authorized an additional $750 million in late March.

Beyond that, AutoZone has secured its position in the do-it-yourself car repair segment. It has a massive distribution network and store footprint, which enables the company to leverage its scale for better pricing and cost advantages. But the growth story for the company will remain with its growing commercial business.

Image source: Getty Images.

With vehicles only getting more high-tech, consumers will increasingly opt to have professionals -- including those employed in AutoZone's garages -- do the repair work for them. Recognizing this trend, AutoZone has pushed to have more of its stores do commercial repair work. During the third quarter, AutoZone had 4,493 commercial programs, a 5.1% increase over the prior year.

Plus, in a world where a key question in every investment thesis has to be, "Can Amazon destroy this company?" investors can breathe a sigh of relief when they realize that the e-commerce giant will likely never be able repair our cars for us! AutoZone had a rough fiscal third quarter thanks to its decision to increase its parts shipments, a choice that ended up yielding little to no benefit, instead increasing costs and inventory after the usual tax-refund-driven sales spike didn't fully materialize this spring. The recent stock price decline is most likely a speed bump; if history is any indication, AutoZone will continue returning value to shareholders, and it has upside through global expansion and developing its commercial business.

Not your average retailer

It's been a tough couple of years for many retailers and their investors. Such down periods can dampen the stocks of the entire sector, fairly or not, and that contagious malaise is partly what has weighed on the share price of Duluth Holdings. The company recently reported first-quarter numbers that beat top-line expectations, but disappointed on the bottom line, further hurting its stock. However, one quarter doesn't make a trend, and investors have reasons to remain optimistic about this unique retailer's future.

DLTH data by YCharts.

Duluth Holdings produces high-quality solution-based casual wear, workwear and accessories for men and women. And unlike many retailers, it's posting strong sales growth. From 2009 through 2016, its compound annual growth rate (CAGR) of net sales was 28%, and over the same time period, its operating income CAGR was 42%.

Recently, with many retailers struggling, there are two traits that the successful ones have in common: an e-commerce growth story, and operating in a niche market. Duluth has both of these traits, especially considering that, after its early success with catalog sales, it actually started its online business before slowly expanding into brick-and-mortar locations -- while most struggling retailers are closing stores and trying to move more of their business online. In fact, 76% of Duluth's first-quarter sales came through its direct-to-consumer segment (which includes e-commerce as well as catalog sales). The company's brand is growing, and it already has a loyal following, in part thanks to its creative advertising and its solution-based workwear.

Now it's time for the company to prove it has a growth story worth buying into. Management plans to do this by building more brand awareness through advertising and accelerating its retail expansion. Consider that its brick-and-mortar retail segment grew 140% year over year during Q1, and it only has 21 open retail stores. It also plans to grow its women's business and broaden its portfolio of men's product categories.

Duluth has a strong e-commerce story, a compelling brand image, a loyal following in a niche market, and plenty of avenues to grow its top line. Despite a disappointing bottom line during Q1, there's plenty of time for the company to prove that won't be a problem for long-term investors.

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Daniel Miller has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends AutoZone and Duluth Holdings. The Motley Fool has a disclosure policy.