Do Not Pander to Your Prejudice
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The holiday shopping season is already well underway, evidenced by Christmas decorations at the mall and stories in the media reporting that some shoppers had finished buying everything on their lists in October!
With Thanksgiving and then Christmas right around the corner (plus that other "holiday," Black Friday), some retail-related stocks are poised to benefit from the holiday shopping season. This week and next, I'm going to share some of the stocks that I think could get the most boost from this annual consumer binge. Today's stocks all fall into the growth category and have been recommended by Cabot Top Ten Trader.
Without further ado ...
Deckers Oudoor (DECK): Shoppers looking for cozy boots and slippers this winter can stop their search at this retailer of the UGG brand. The sheepskin footwear produced 79% of Deckers' 2010 revenue, making a key component of the company's business. In addition to the UGG cash cow, Deckers is behind Teva sandals, Simple sustainable shoes and Tsubo fashionable footwear. The majority (three-quarters) of Deckers' revenue still comes from the U.S., but the company is branching out into international markets. With a long history of success in managing its various brands, Deckers should have a profitable run ahead. Additionally, institutional support, a bullish sign, is very high right now.
The next two stocks are ones we've discussed a few times in Cabot Wealth Advisory, but the underlying theme behind their success remains a powerful one. As the economy struggles and consumers look to save money, discount retailers are having their moment in the sun. Enter Dollar General (DG) and Dollar Tree (DLTR).
Dollar General (DG): This discount retailer has found success in its strategy of putting relatively small stores (about 7,200 square feet) in convenient locations, making them easily accessible to all who want to shop there. Dollar General stocks brand-name merchandise that it sells at a big discount in its 9,500 stores in 35 states across the South, Southwest, Midwest and East U.S. The company works to keep overhead down by focusing on a limited assortment of products and quick turnover of its stock. Dollar General is now working to expand its stores while lowering is debt. Institutional support is growing and Warren Buffett recently became an investor, indicating he thinks the theme behind DG's success will continue (he once said that his favorite holding period is forever).
Dollar Tree (DLTR): As with Dollar General, a still-weak economy and high unemployment rate have created the perfect environment for Dollar Tree to achieve success. Part of this is a broad money-saving mindset among all consumers that are pinching pennies anywhere they can. Dollar Tree's earnings per share have been rising consistently for the last five years ($1.23, $1.41, $1.69, $2.37 and $3.23), with higher numbers predicted this year and next. Just this week, Dollar Tree reported its 11th straight quarter of profit growth and raised guidance for the rest of the year. Dollar Tree sticks tight to its $1 price point for all items, distinguishing itself from some dollar-store competitors that go above that level. More than anything else, a trend in this sector is helping both DLTR and DG.
MasterCard (MA): When consumers go to pay for their Christmas goods, they'll most likely pull out a credit or debit card. Cash is no longer king in retail transactions and companies like MasterCard are benefiting from that. After MasterCard's revenue growth shrank to just 2% in 2009 during the depths of the recession, it rebounded nicely in 2010 to 9% and continued rising in 2011. Every time a consumer uses their MasterCard, the company gets a cut, and it's sure to benefit from increased spending around the holidays. The company is expanding outside the U.S. to fast-growing markets around the world, focusing on debit cards, prepaid cards and special programs to lure in customers. MA has appeared in Cabot Top Ten Trader 19 times--five times in 2011 alone, a very positive sign.
Sally Beauty Holdings (SBH): Sally Beauty is benefiting from a larger positive trend in the beauty supply segment (peer Ulta Salon (ULTA) has appeared in several Cabot newsletters in recent months). The company began in New Orleans in 1964 and has grown over the years by acquiring smaller chains of beauty supply stores, making it the largest such company in the world. The company has two divisions: Sally Beauty Supply, which sells 8,000 professional hair, skin and nail products in 4,200 stores, and Beauty Systems, which sells up to 10,000 products exclusively to professional stylists and salons in 1,000 stores. The company has seen 10 quarters of double-digit earnings growth that has continued in 2011, and the strength of this segment should continue to boost the company.
You could buy the above-mentioned stocks here and hope for the best, or you could get Mike Cintolo's latest recommendations on these and other top growth stocks in Cabot Top Ten Trader.
I hope you enjoyed today's write-up and if value stocks are more your thing, be sure to read next week's issue of Cabot Wealth Advisory!
Here's this week's Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.
Do Not Pander To Your Prejudice
To pander is to cater to the base passions of others, or even indulge one's own. And if prejudices, frequently irrational, are pandered to, clearly no long-term good can come of it. To be a successful investor, the rational mind must rule.
In this week's Stock Market Video, Cabot Market Letter Editor Mike Cintolo says that the market took a step back this week and it appears that in the near-term, the sellers are taking some control. However, in the intermediate- and long-term, the story hasn't changed that much. We're still transitioning from a bearish phase to a bullish phase, but it could take a while for that to materialize. Stocks discussed: Baidu (BIDU), Apple (AAPL), Amazon.com (AMZN), Priceline.com (PCLN), Lululemon (LULU), Chipotle (CMG), Estee Lauder (EL), GNC Holdings (GNC), Spreadtrum Communications (SPRD), MercadoLibre (MELI), Tesla Motors (TSLA) and Nuance Communications (NUAN).
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 11/14/11 - Toyota Prius, Tata Nano, Tesla Roadster and More
On Monday, Cabot Publisher and Cabot Stock of the Month Editor Tim Lutts discussed the exciting things happening in the automobile industry and how various car manufacturers stack up against one another. Tim wrote about why Tata Motors (TATA) and Tesla Motors (TSLA) are good stocks for investors seeking growth in this sector.
Cabot Wealth Advisory 11/15/11 - Two Plays on Natural Gas
On Tuesday, Dick Davis Digests Editor Chloe Lutts discussed the natural gas industry and why dividend investments are the best way to play it. Chloe recommended Encana Corp (ECA) and Cheniere Energy Partners LP (CQP) for investors seeking to profit from the industry.
Cabot Wealth Advisory 11/17/11 - Buying the Mouse
On Thursday, Cabot China & Emerging Markets Editor Paul Goodwin discussed innovations in media technology over the last few decades and how they have played into the tension between producers who want to maximize revenue and users who want to maximize access. Paul recommended a stock that is benefiting from nearly every area of the entertainment business. Featured stock: Walt Disney Company (DIS).
Until next time,
Editor of Cabot Wealth Advisory