Rooting for your Raise
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At this point, just about every worker in the US has received their first 2013 paycheck. The extra chunk of taxes taken out wasn't fun for anyone, and with the price of gas rumored to increase soon, consumers aren't feeling like a million bucks. Being realistic is important, but instead of focusing on rumors, it can be beneficial to examine trends. Wages increase over time, even if it's at a snail's pace. Early projections state US salaries will increase by three percent on average, meaning a growth in real wages is finally here. This extra cash will keep purchasing power up, but more importantly keep consumers confident in their economy. Companies that sell expensive goods and services need this combination from spenders.
While Vail Resorts (NYSE: MTN) might scare potential investors on paper, step away from the forward P/E of 38.6 for a second. Skiing is a costly activity no matter how you dissect it. Lift tickets, lodging, and equipment are some basics that visitors will purchase, a nearly guaranteed flow of cash granted winter decides to keep happening every year. Premium activities come with this cost, so if the company isn't a bargain, think about the industry. Mountain upkeep, construction, and liability insurance are just the tip of the iceberg. Profits are going to fluctuate with snowfall and the overall economy, but passionate people will save the dough and continue to head to the mountains. Vail Resorts will continue to benefit from winter sports as it gobbles up more resorts and property, most recently Afton Alps in Minnesota and Mount Brighton in Michigan.
Last season, resort visits for the industry were down over 15% from the 2010-2011 season. Almost half of all US ski resorts opened late and closed early due to lack of snow. I'm not going to get into a debate about climate change, but this season the snow is falling. As long as the resorts are open, people will continue to flock to the gondola. With free cash flow in the green for two straight years, Vail is poised to build a winning streak.
High End "Necessities"
I don't know the exact definition of "necessity," but I am nearly positive that women will continue to buy lingerie and personal care items as long as the world turns. If consumers have more confidence and a heavier wallet, Limited Brands (NYSE: LTD) has high potential to bounce back through Victoria's Secret and Bath & Body Works. Net sales for December were up 4.2% from the prior year, despite worries this year on holiday spending due to the fiscal cliff. The two segments are doing well, and shareholders are getting rewarded with a 25% increase in their dividend.
Again, the forward P/E of 16.9 is above average in the industry, but the products of this company appeal to consumers seeking this level of quality and style. Revenue has increased over 20% over the past three years tied to success of brands such as PINK and a heavy media presence. Limited has a cash pile that is dependent on consumers' desire to spend extra money for the brand but higher salaries will raise the bar for this company and provide an opportunity for investors.
Going for More than Half of Eaters
The constant value debate of Whole Foods Market (NASDAQ: WFM) intrigues me, because new stores seem to pop up regularly and continue to draw crowds. In thirty eight states and counting, Whole Foods isn't trying to trick anyone: it's a premium store that focuses on premium items. Consumers are becoming increasingly aware of health trends and want to invest in their nutrition. It starts with buying a few things, but this extra money in that paycheck, people will be inclined to make regular grocery trips at Whole Foods.
Yes, Whole Foods Market is expensive, trading at 25.2 times forward earnings. It's an aggressive growth stock because the industry of organic, natural food is growing aggressively. Financial health will lead consumers to invest more in personal health. Net income, EPS, and free cash flow continue to grow at a steady rate. Expenditures may increase due to additional store openings, but this will provide long term stability for the company and increase its market cap. As Whole Foods reaches more people even with a slowly growing economy, expect these positive statistics to keep hitting the headlines.
Winning with the Workforce
When employees win, many companies share the victory. Companies that provide a premium high-end product or service will benefit most from salary increases and consumer confidence. Many people go on vacation, even more shop for lingerie and beauty products, and everyone eats. When crunching the numbers, keep this bigger picture in mind and focus on the company a bit more than the stock. If you're lucky enough to get that raise, where are you going to spend more?
KyleVaughan has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. 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!