These Stocks Are Breaking Out to New All-Time Highs. Buy, Sell, or Hold?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As of this writing in the final week of February, stocks have resumed the trend lower following the worst two-day selling period we’ve seen this year on Wednesday 2/20 and Thursday 2/21.
Many investors appear in agreement that the market has become overbought. A large portion of money flows into equities is related to record-low interest rates and a thirst for yield from dividend-paying stocks. In my opinion, once rates begin to rise towards historically normal levels, I expect to see the next bear market upon us as investors will pull money from stocks and allocate to other investment classes.
With the broader market at multi-year highs, I’m looking for specific companies that are performing well in their individual businesses. Let’s take a look at three companies that are breaking out to fresh all-time highs and determine if the fundamentals warrant further upside.
Domino’s Pizza (NYSE: DPZ)
Shares of Domino’s Pizza are within a whisper of their all-time high of $47.91 reached on February 1.
During January, Domino's spoke at the annual ICR XChange Conference here in Miami. Management provided a number of positive takeaways from the event, which justify the stock price in my opinion.
First, management stated it plans to open 3,000 more stores in the company’s top 10 international markets. Domino’s currently has 5,144 franchised international locations that contribute to 52% of the company’s sales. Second, I am impressed that the company generates a third of their sales via their online website or mobile. Analysts at Oppenheimer agree and view the patent-pending technology on Domino’s website as a competitive advantage.
On January 22, Argus Research raised its price target on Domino’s to $54 from a previous $46, as it earnings will increase with new store openings and favorable operating leverage (i.e. as sales increase, each new pizza sold contributes more to profitability).
Domino’s is set to report fourth quarter earnings on Thursday, February 28 before the opening bell. Goldman Sach has a $52 price target and “Conviction Buy” rating on the stock, and is recommending the purchase of DPZ shares into Thursday’s earnings announcement.
Overall, I like the risk/reward growth story with Domino’s Pizza more than a comparable such as Chipotle Mexican Grille. I recommend that investors “Buy” shares of Domino’s Pizza.
In other news, the Centers for Disease Control and Prevention is reporting that Americans consumed less fast-food during the 2007-2010 time period compared to 2003-2006. Although no specific restaurants were named, places identified as “restaurant fast-food/pizza” were included in the study. I would not read into this news for Domino’s Pizza, as the data is backward-looking. Furthermore, I suspect that the informational value is heavily weighted towards quick-service restaurants such as Burger King, McDonald’s, and Wendy’s.
Google (NASDAQ: GOOG)
Google, which was founded at Stanford University by Larry Page and Sergey Brin in 1998, went public after the 1999-2000 tech bubble at a price of $80 per share. The company’s stock is one of few success stories for investors over the last decade, in contrast to the Facebook IPO which was a tragedy on multiple levels.
On top of Google’s dominance in online search, the second-largest tech company is becoming a legitimate competitor in the hardware space. Google’s Chromebook computer is taking market share from traditional laptops because the product is always up-to-date and doesn’t slow down over time.
On February 21, Google announced the launch of Chromebook Pixel, its newest device and by far the most expensive in the line-up at $1,299 MSRP. Google is entering the high-end laptop market and could attract customers away from the Macbook Pro and Macbook Air owned by Apple, which remains the largest tech company ahead of Google.
In addition to hardware and search, the Financial Times is reporting that Google is currently in active discussions with record labels to launch a streaming music service which could compete with the likes of Pandora Media and Spotify. Revenue at Google has grown a massive 32% in the last 12 months, while earnings have grown 9%.
On February 21, Asian investment firm CLSA raised its price target on Google to $1,000 from a previous $900. New York based Sanford Bernstein also raised its price target on Google to $1,000, stating the firm should benefit from “connecting everyone, everywhere.”
In my opinion, Google seems to be doing everything right at the moment, and I believe shares will continue to go higher. I recommend that investors “Buy” shares of Google.
Mattel (NASDAQ: MAT)
Despite modest revenue growth, shares of Mattel are currently trading at fourteen year highs. The world’s largest toy maker has a host of upside drivers for the remainder of 2013 based on recent feature films and new releases. These include Thomas the Train (my personal childhood favorite), Disney’s Planes and Sofia the First, and Max Steel action figures.
Mattel released Q4 2012 results on February 1 and held its analyst meeting on February 8.
For the fourth quarter, Mattel reported lower-than-expected EPS of $1.12 vs. $1.15 consensus and revenue came in lighter than expected at $2.26 billion vs. consensus $2.29 billion. I would not read into the slight miss as fundamentals remain strong and the stock is priced reasonably. Adjusted EPS grew to $2.47 vs. $2.18 during the prior year. Worldwide net sales increased 5%, lead by an 11% gross sales increase for the American Girl brand of dolls. Finally, the company’s board of directors declared a 2013 first quarter dividend of $0.36 per share, representing a 16% increase to last year’s total dividends on an annual basis.
I recommend that investors “Buy” shares of Mattel.
Foolish Bottom Line
While a portion of individual stock performance is dependent on its sector, my experience indicates that investors can earn superior returns by identifying the best of breed companies by industry.
On a technical basis, the charts of all three companies appear to be healthy. Furthermore, since these stocks are breaking out to fresh all-time highs, there are no existing sellers waiting to recover their initial investment. Each of these companies has outperformed the S&P 500 over the last 5 years and I believe Domino’s Pizza, Google, and Mattel will continue to outperform for the next 12 months.
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johnmacris has no position in any stocks mentioned. The Motley Fool recommends Google and Mattel. The Motley Fool owns shares of Google. 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!
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