5 Valentine’s Day Value Stocks
Arthur is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many years ago, when I was a college student, I used to work at Godiva. Although I had to learn the difference between generic chocolate bars and gourmet chocolate treats, a valuable lesson indeed, one of the most important investment lessons that I discovered was the power of seasonality. Although the Godiva location where I was employed was in a busy mall with constant traffic, most of the business we saw came through on Valentine’s Day, followed by Christmas and Mother’s Day.
The days leading up to Valentine’s Day provide many small business owners in the fields of flowers, treats and jewelry with an overwhelming stream of revenue that enables the business to survive for another year (I know this because a friend of mine owns a small flower boutique and told me on several occasions that without the seasonal Valentine’s Day sales pop, her business would have gone under several years ago).
Although large public companies are not dependent on a single day for their continued operations, Valentine’s Day does provide a healthy seasonal revenue increase to a number of businesses. According to IBISWorld, U.S. consumers will spend $19.8 billion on Valentine’s Day gifts this year, an average of over $130 per person.
Robust annual growth is expected throughout the various holiday categories -- restaurant sales are forecast to increase 6.1%, jewelery by 5.2% and candy sales by 3.6%. Flower sales are expected to show modest year-over-year growth, escalating 3.3%.
Below are five Valentine’s Day stock picks investors can consider to add seasonal value to their portfolios.
Greeting card sales growth is expected to show growth of 1.6%, possibly due to the fact that even in tight economic times people will still be able to afford a Valentine’s Day card while foregoing an expensive dinner outing or a $100 bouquet of flowers. American Greetings (NYSE: AM) sells a wide variety of personal paper cards and allows users to send ecards, making money from the internet advertisements.
American Greetings has been operating for over 100 years, pays a solid 4% dividend and recently authorized a $75 million share repurchase program.
1-800-Flowers (NASDAQ: FLWS) sells flowers, fruit baskets, chocolates, cookies and other types of plants for all occasions, offering same-day delivery. Basically the popular flower chain covers the wide spectrum of Valentine’s Day gifts, with flowers as the staple products and the other items as supplementary goods.
What started off as a single flower shop in 1976 has grown into a $200 million business with annual sales of approximately $500 million. Because flowers are often considered luxury goods, 1-800-Flowers trades with a high beta of 2.29. Luckily the American consumer is coming back to work and increasing his shopping habits.
Victoria Secret, La Senza, Bath & Body Works, The White Barn Candle and Henri Bendel -- a trendy accessories boutique selling everything from handbags to cosmetics to jewelery -- fall under the Limited Brands (NYSE: LTD) umbrella. The staple names, Victoria Secret and Bath & Body Works, provide products that make popular Valentine’s Day presents.
Seeing comparable store sales increase by 7%, management reiterated that fourth quarter earnings will be near the top of the $1.42-$1.46 guidance forecast. With steady sales and strong prospects, Limited Brands has paid 149 consecutive dividend payments and recently increased its payout by 25%.
Although large jewelery retailers such as Tiffany’s see a drastic sale spike on Valentine’s Day, smaller retailers are better positioned to take advantage of holiday seasonality trends as they typically don’t see the same steady stream of business that larger businesses experience. With a relatively meager market cap of slightly over $100 million, Zale (NYSE: ZLC) operates 1,160 specialty retail jewelry stores and over 650 mall-based kiosks.
During the Christmas season Zales reported comparable jewellery sales growth of 9.0%, a trend that may extend into Valentine’s Day shopping. Zales is a fairly risky investment, as its beta is a staggering 3.2; during the economic downturn its stock price plummeted from $28 to $1.20; this year, however, should be favorable for the jewelry retailer.
Brinker International (NYSE: EAT), the operator of Chili’s and Maggiano’s restaurant concepts, is less of a direct Valentine’s Day play but more of a broader economic value stock. Although its restaurants are likely to be booked up on Feb. 14, the restaurants will have only one additional day of high holiday sales. Jewelry and greeting card providers, on the other hand, are a truly seasonal business with increased sales in the weeks leading up to the big day as well. Restaurants, however, experience normal sales volumes on Feb. 12, 13, and 15.
Trading at a low earnings, cash flow and sales ratio compared to the industry, Brinker International provides attractive value fundamentals.
Right now is the time to consider seasonal companies that see high growth during Valentine’s Day.
The Motley Fool owns shares of Limited Brands Inc. apinkasovitch has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.