Getting Your Portfolio in Shape for 2013
Jake is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With a new year comes new resolutions, which for many Americans means losing weight or hitting the gym more. According to a study conducted for Bodybuilding.com, around two-thirds of adults who make resolutions start the year with a fitness goal. So every January, it may seem like a good idea to purchase a health-related stock, but you shouldn’t just follow a fad. 73% of the people who make fitness goals stop before fulfilling their resolution. Since it can be so difficult to stick to these goals, the best long term stocks are companies that can alleviate the struggle and retain customers for years to come.
Supplementing Your Portfolio
Since fitness goals are so difficult to reach, more Americans are using supplements to help along the way. As a result, GNC (NYSE: GNC) makes for a great stock pick. While the company won’t be able to match its approximately 50% earnings growth rate from 2012, analysts still project GNC to grow an average of over 22% the next five years, nearly double the industry rate. Plus, GNC beat EPS estimates for the last four quarters, so there’s good reason to believe they can at least match analysts’ projections.
In addition to GNC, Vitamin Shoppe (NYSE: VSI) should also be able to cash in on the supplement industry’s growth. While its EPS lags behind competitors, Vitamin Shoppe is expected to surpass GNC in revenue growth next year. The company recently acquired Super Supplements, a small chain in the Pacific Northwest, which will raise Vitamin Shoppe’s presence in the area from 17 to 48 stores. The purchase will only have a small impact on earnings this year, as it's expected to contribute around $75 million out $1.1 billion total. Still, the acquisition indicates that Vitamin Shoppe is on a growth track as it expands its presence across the country.
When choosing between the two stocks, though, GNC looks like the better choice. Vitamin Shoppe carries a high P/E ratio of 27, whereas GNC sits at 15. Though Vitamin Shoppe’s ratio should improve over the next few years, the company does not offer a dividend. Since GNC offers a modest yield and has a lower price point, it looks like a better pick currently.
Gains From Losses
While the supplement industry has cut into the more traditional dieting industry, Weight Watchers (NYSE: WTW) is a good pick for 2013 because of its dual revenue stream from membership and weight loss products. And not only was Weight Watchers ranked as the top overall diet by U.S. News and World Report, it also came in first place for the easiest diet to follow. Thus, the company has more appeal to those who find it difficult to stick to New Year's resolutions.
Aside from the dieting perspective, Weight Watchers also beats the competition from a stock perspective. Companies such as Nutrisystem (NASDAQ: NTRI) and Medifast (NYSE: MED) fall far behind in nearly every category such as profit margin, cash flow, and EPS.
Nutrisystem has an incredibly high P/E of over 250, and share prices have tumbled to about third of its 2011 high. The nearly 9% dividend and low price point may seem appealing, but you should be wary of jumping in until the company can sustain growth in this competitive market.
Meanwhile, Medifast has shown far better revenue growth than Nutrisystem and its P/E ratio of 23 isn't as dramatically high, but there's uncertainty in the company as two CFO's have resigned in the past two months. The share price fell quickly after the latest resignation, and it would be prudent to wait until the next earnings statement in March to see if something is off.
While these competitors have their flaws, Weight Watchers looks like a safe pick with room for reasonable growth. The company currently sits at a comfortable P/E ratio of around 13, and has a 5-year expected PEG of 1.21, indicating that the stock has an above average chance of beating the market.
So, whether or not you reach your own resolutions this year, you can still meet or surpass your 2013 investing goals by choosing Weight Watchers and GNC.
JakeSafane has no positions in the stocks mentioned above. The Motley Fool 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!