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Happy Thanksgiving! I hope you’ve been enjoying the festivities surrounded by family and friends (and that you’re over your food coma). You may have even taken part in a little holiday shopping yesterday, the day of all days for retail stores: Black Friday.
In honor of that “holiday,” I’m bringing you 10 retail stocks for the holiday season … and beyond. Some are technology stocks benefiting from the easing recession, which has sparked consumers and businesses to purchase personal computers, tablets and the like. Others are clothing companies, most a bit higher end than the ones we were discussing at this time last year. The first five have all been featured in Cabot Top Ten Weekly and the next five have all been featured in Cabot Benjamin Graham Value Letter, so there’s something for both growth and value investors.
Without further ado …
Amazon.com (AMZN) In a way, Amazon is in a similar situation as it was in the late 1990s. If you remember, back then Amazon was losing money but doing everything it could to expand and grab market share—and the market rewarded shares during the bull market. Today it's a similar story; Amazon is solidly profitable and much larger these days, but management is investing heavily in its infrastructure and marketing, which is holding down earnings growth. On the revenue side, however, Amazon's progress is stunning—while overall retail sales are middling, Amazon has seen
revenues expand 39% to 46% each of the past four quarters as it grabs market share among e-commerce competitors, and as its Kindle e-book reader becomes ever more popular (one analyst thinks Kindle sales could total $2.8 billion this year, or nearly 10% of revenue). And once this spending spree subsides, analysts are optimistic the bottom line will catch up in a hurry; earnings are projected to lift 39% in 2011, which we think could be conservative.
Apple (AAPL) Apple needs no introduction, as it's one of the best-known (and best-loved) companies today. The big news during the past few months was probably news that did not come about—after a well-publicized mess-up with its new iPhone (antennaegate), consumers didn't storm out and the issue seems to be resolved. And that allows investors to look ahead to the many other irons Apple has in the fire, such as the fast-selling iPad (some now see north of 40 million sold during the next 12 months), a possible new iPhone using Verizon's network (this could be particularly huge for business), new Mac computers, and the new Apple TV, which allows Netflix streaming and movie rentals right to a TV. Sales and earnings growth remains terrific, and valuation, at 21 times trailing earnings, is surprisingly reasonable.
Coach (COH) Coach is another leader of the prior bull market (its best run occurred from 2003 through mid-2005) that's picking up steam as growth begins to re-accelerate. This higher-end retailer continues to push the right buttons, delivering stunning profit margins (20% or higher in three of the past four quarters) and positioning itself for big things overseas,especially in Asia. Japan has always been a big area for Coach, but now China is catching up; same-store sales in China were up double-digits in the third quarter, and the company plans to boost its square footage in that country by a huge 60% next year. Management even said that its share in China could increase five-fold during the next five years! That said, Coach isn't in hyper-growth mode; with nearly $4 billion in revenue, those days are in the past. But by successfully pushing its brand overseas, the company looks to keep sales and earnings expanding at a 15% to 25% clip for many quarters to come.
Lululemon Athletica (LULU) There have been many big stock market winners during the past few decades that involved new, unique retailing concepts, and Lululemon could be the next one in line. The company is succeeding by selling clothing that fits a new niche--athletic yet fashionable wear. It got its start by selling yoga-wear, and yoga-wear still defines many people's idea of the company. However, many people wear their Luluemon clothes outside of the gym, and this multi-functionality, combined with comfort, durability and attractiveness, means the clothes fetch a very high price tag. So far, management has been conservative with its growth plan; there are just 130 or so stores with a few dozen showrooms in Canada, the U.S. and Australia. But by the end of next year that figure could grow to 160 or 165, a 25% jump. And that says nothing about the firm's booming sales at already-open stores--sales there grew a mind-boggling 31% in the second quarter! We think this story could go far if management can continue to make the right moves.
Under Armour (UA) Under Armour was founded in 1995, the brainchild of a University of Maryland football player. The company's original products were compression shirts and shorts designed to be worn under athletic uniforms that featured fabrics that wicked moisture away from the skin. The success of those original products gave Under Armour lots of street credibility, and helped support its expansion into outerwear (optimized for three different temperature ranges), footwear, gloves and accessories for the active athlete. The company's market cap is just $2.8 billion (compared to Nike's $38 billion), but Under Armour has become a credible competitor with an active ad program and a base of devotees among men in their teens and 20s. News of a new targeted marketing program aimed at women athletes got some great buzz earlier this month. Revenue growth has been steady and earnings should lift 25% next year, if not more.
Read more about these five stocks and other growth leaders featured in Cabot Top Ten Weekly.
And these next five have all been featured in Cabot Benjamin Graham Value Letter:
American Greetings (AM) American Greetings is the second largest creator, manufacturer and distributor of greeting cards and social expression products. Its staff of artists, designers and writers make up one of the largest creative departments in the world and supplies greeting cards to retail outlets in nearly every English-speaking country. American Greetings’ management is redesigning operations by cutting costs, selling less-profitable operations and acquiring smaller companies to enhance profits and growth.
Gildan Activewear (GIL) Gildan Activewear manufactures basic apparel including T-shirts, sport shirts, socks and sweat clothes. The company sells plain garments, known as blanks, to screenprinters and decorators who add designs and logos. Gildan, based in Montreal, is the leading supplier of blank garments in the U.S., Canada, and Europe. The company is adding new products including men’s and boy’s underwear, and expanding geographically into Mexico and Asia. The company has steadily boosted its U.S. market share for major items to 63%, partly because of the low price of its products.
Microsoft (MSFT) Microsoft is the leading maker of software, primarily because of its dominance in desktop computer operating systems and office productivity products. The company’s Windows operating systems run more than 90% of all personal computers throughout the world. Microsoft’s server software products are used in 70% of all computer server systems. The software giant continues to spend heavily on research and development to maintain its front-running positions in the technology sector.
TJX Companies (TJX) TJX Companies is the largest U.S. retailer of discount apparel and home fashion goods with 2,700 stores in the U.S., Canada, Germany, Ireland and the United Kingdom. TJX opened more stores than planned in 2009 and renovated many of its existing stores. These moves attracted many new customers who were drawn to low prices and good-quality merchandise. We expect TJX to retain its newfound customers and expand its store base aggressively during the next couple of years.
Wal-Mart (WMT) is the world’s largest retailer with $40 billion in sales. The company employs 2.1 million workers. Shoppers seeking low retail prices are boosting Wal-Mart’s sales and earnings results despite the current economic slowdown in the U.S. The company is delaying U.S. expansion to focus on faster-growing international growth.
Read more about these five stocks and other value investments featured in Cabot Benjamin Graham Value Letter.
I don’t have a new Stock Market Analysis Video for you this week because of the holiday, but I do have a special edition of Cabot Chart School that
we sent you a few weeks ago. Here it is again in case you missed it …
In the video, Mike explains basic chart reading techniques and clues to watch for. He explains the significance of the 50-day moving average,
volatility and volume. Click to watch.
In case you didn't get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you
might have missed, there are links below to each issue.
Cabot Wealth Advisory 11/22/10 – How to Invest like Warren Buffett
On Monday, J. Royden Ward wrote about Benjamin Graham, the father of value investing, and his influence on Warren Buffett, one of the most successful
investors of all time. Roy discussed seven guidelines that will help you invest like Warren Buffett as well as two stocks that fit the criteria. Featured stocks: Microsoft (MSFT) and Oracle (ORCL).
Cabot Wealth Advisory 11/23/10 – Why I’m Shorting the Safest Investment in the World
On Tuesday, we brought you a piece by Amy Calistri of StreetAuthority in which she discussed why she’s shorting Treasuries, one of the safest investments in the world.
Cabot Wealth Advisory 11/25/10 – Being Thankful, Even for the Government
On Thursday, Brendan Coffey discussed what he’s thankful for this year, including the U.S. government (think $100 billion in stimulus money for Green initiatives). Brendan also wrote about the performance of his newsletter, Cabot Green Investor, and a stock benefiting from a convergence of trends in the Green space. Featured stock: MasTec (MTZ).
Until next time,
Editor of Cabot Wealth Advisory
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