3 Stocks for Your Summer Vacation
Declan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The summer vacation season is in full swing. And with that, on many minds will what books to read, rather than what stocks to buy (or sell). The summer season can be a scrappy affair for the market, light trading doing enough to keep the lights on until the fall season. However, there will always be stocks nicely positioned to advance no matter what the season. These 'gentle sea breeze' stocks are just the ticket to for your vacation portfolio.
Acuity Brands (NYSE: AYI) got a handy bump when it released earnings July 2. The provider of lighting solutions saw a 11% jump in sales to $541.5 million, with 20% of sales driven by LED lighting. Its success has largely been driven by the recovery in construction spending, which is up 13% from 2011 lows:
Acuity Brands reported a 20% rise in residential construction over the year, although the company noted a "tepid environment for new non-residential construction". However, the "inconsistency in orders" noted in its earnings call wasn't enough to throw an earnings miss, but it does muddy the outlook on what's expected to be an improved second half of the year. There was also an $8.1 million adjustment attributable to fraud at a freight service provider and a restructuring charge of $7.2 million. With these losses taken into consideration, operating profit for the current quarter came in at $50 million compared to $59.2 million a year earlier.
The company doesn't offer guidance, but it is looking at single digit growth for non-residential construction and is leaning on the renovation (residential) market to drive Q3 sales growth; although it expected residential sales growth to be single digits too. As a positive, profit margins on its growing LED segment should improve as costs for LED components continue to go down. Rival Koninklijke Philips N.V. reported a 38% jump in LED sales during Q1. While cannibalization of non-LED business is to be expected, the robustness of LED sales is good news for both companies in what can be considered a technology upgrade cycle. As a bonus, Acuity Brands 12.2% operating profit margin is comfortably ahead of Koninklijke Philips N.V.'s 7.4% operating margin.
A. Schulman (NASDAQ: SHLM) belongs to the over maligned materials sector. The company opened its recent earnings call with an announced withdrawal of its $6.50 offer for Ferro, but with a few days trading now under its belt the 'bad' news reaction looks to have played out (although not for Ferro). The company did state it was looking for new acquisition opportunities.
The company followed the acquisition update with a "disappointing third quarter" driven by inconsistencies in ordering, and a lack of visibility in Europe - nothing new for the sector here. However, a Brazil restructuring is also pending, and is expected to be complete by Q1 2014. (During the third quarter, A. Schulman was using its Mexican operations to supply Brazil.)
To complicate matters, A. Schulman had underestimated domestic Mexican demand, which added to local operating costs. Collectively, these missteps left the company's Latin-Central American picture in flux, and it was amid a general sense of uncertainty that A. Schulman adjusted guidance to $1.70 to $1.80 for the fiscal year. However, Dow Chemical (featured in June) had similarly commented on an "extremely weak" Europe, but had noted Brazil "remain[ed] fairly strong," as went Latin America as a whole; the region was considered a "bright spot".
Therefore, operational costs driven by the restructuring are likely carrying too much weight on A. Schulman's earnings this year. On another positive note, with a P/E in the mid-teens, A. Schulman trades at a discount to Dow Chemical, although it runs on tighter margins than its larger rival.
Finally, if you are feeling a little feisty for the holidays, there is Bassett Furniture Industries (NASDAQ: BSET) to consider. This is an under-the-radar small/micro-cap stock that will enjoy the same benefits from the recovery of the residential housing market as Acuity Brands. Better still, this is a company with a market cap of $178 million and a bank balance of $48 million. Debt levels sit at a modest $3 million.
Now, the P/E of 6.4 is a ruse, built off a one-time credit of $14 million in Q4 and the forward P/E of 23.1 is more typical of what can be expected, but this valuation still places the company at a discount to competitors Ethan Allen Interiors and Haverty Furniture Companies, which sport P/Es of 26.8 and 24.7 respectively. Throw in a token 1.3% dividend yield and you have a budget holiday bargain.
As a footnote, Bassett Furniture Industries was to have released earnings, although it failed to make it out before the July 4 holiday. An analyst downgrade to 'Sell' didn't cause too many ripples, although the delay in the release may have been a little worrisome for those expecting a decent quarter.
Each of these stocks has demonstrated a level of immunity to the summer sell off and so far, two of the three have reacted favorably to new season earnings. A. Schulman belongs to a sector which has had a quiet 2013, but should soon get its turn on the merry- go-round based on cheap valuations for materials sector stocks. Acuity Brands and Bassett Furniture have the benefit of a residential housing recovery to support their growth. Acuity Brands will also benefit from consumers switching to newer LED lighting technologies and the renovation market.
All three have the credentials to ride the summer season into the next earnings season in good health. In the meantime, enjoy the rest of your summer.
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Declan Fallon has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!