The Tears for Fears Trade
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If anyone knows how to get a song out of one’s head please let me know, because 1985's ‘Everybody Wants to Rule the World’ by Tears for Fears has been pinging around in my head since yesterday. It is arguably one of the best songs for driving with the top down from Miami to Key West as the palm trees rhythmically pass by to the shuffle beat. But I never realized before the lyrics were so dark and apocalyptic.
When The Walls Come Crumbling Down
There are a lot of paranoid people out there worried about an epic economic collapse, terrorist attacks and the so-called Doomsday Preppers are stocking pantries, cocking rifles and socking away gold. Folks that aren’t worried about their cache still have extreme weather events, which have become more frequent in a multi-year trend: earthquakes in the Mid-Atlantic, tornadoes, tsunamis, hurricanes, megablizzards, you name it.
On August 20 Goldman Sachs US equities strategist David Kostin put out a note admonishing clients to get out of stocks while the getting’s good before the imminent fiscal cliff. You’re not paranoid if you’re right, they say. I am a little more sanguine about the economy but being prepared can’t hurt, right?
There’s A Room Where The Light Won’t Find You
There are three sources for preppers, Panic Room builders and garden variety nervous Nellies who just like to be prepared. If you plan to ‘bug out’ you are going to need a heap of supplies and you can get them from The Home Depot, Inc (NYSE: HD) and Cabela’s (NYSE: CAB).
Even without that song reverberating, researching emergency prepping is making my head hurt. I now know how to purify urine for drinking and I wish I didn’t. But I also know that these are the names to go to for your 'when the ---- hits the fan' needs, referred to merely as SHTF by preppers.
Home Depot has handily (pun intended) outperformed Lowe’s Companies Inc (NYSE: LOW), and after Lowe’s disappointing earnings on August 21 the market seems to have declared Home Depot the winner. Lowe’s has a lower P/E at 17.40 and a slightly higher yield at 2.40%, but Wall Street sentiment is against it. Home Depot is where people are finding the generators, duct tape, plastic sheeting – all those supplies authorities told Americans to stock up on. As for a panic room, you’re going to need those building supplies for that ‘room where the light won’t find you.’
Home Depot is close to yet another 52 week high at $56.32 and has a P/E of 20.24 and a yield of 2.20%. It is benefiting from Lowe’s everyday low pricing which is working about as well as it did for J.C Penney. Home Depot is also a way to participate in a recovering housing market with 20% gain in housing starts over the last year. Based on all this, it’s no surprise they beat at the August 13 Q2 earnings release by $0.15 per share over Q1. Home Depot has also partnered up with eBay to offer PayPal options at their stores.
Make The Most Of Freedom And Of Pleasure
Lastly, gun stocks are smoking hot this year but Cabela’s is the place for all your sporting, fishing hunting and prepping supplies. The P/E is at 20.25 but the stock has doubled in little less than a year. Cabela’s also has a PEG of 1.12. Its corporate governance risks are low, which is only to be expected from a 50 year old Nebraska firm. The company also sends out 130 million catalogs fto over 175 countries.
Cabela’s only has 37 stores in the US and Canada but as I mentioned before in my Good Ole’ Boy portfolio post the stores are tourist destinations, such as the Hamburg PA store with its amenities like horse corrals, dog kennels, RV parking and museum quality animal displays, aquariums and trophy animals in habitat dioramas. You can have a birthday party or business meeting catered as well as take advantage of the archery range, fly fishing and casting classes and special events like taxidermy shows and youth waterbird calling demos. The parking lots are always full of RV’s, semis and tour buses. You don’t have to believe in a Doomsday scenario to enjoy Cabela’s.
Also of note, CEO Thomas Milner is rated as one of the top ten mid-cap CEO’s by Chiefist.com, which evaluates CEO’s on their return on equity, growth of EPS, margins and book value per share. The Cabela family still owns 6,805,564 shares and institutions hold 100% of the shares in the float.
Also, after reporting a strong Q2 on July 26 the shares rose 14.5% on strong volume. Cabela's has consecutive accelerating growth. It's planning two more stores one in Saginaw and the other in Anchorage, both places with strong hunting and fishing communities. This is a really nice long hold.
Everybody Wants To Rule The World
Cabela's and Home Depot are ruling the world of their sector; Home Depot lording it over Lowe’s and Cabela’s with a serious royal moat around their sporting goods business. These two have outperformed in a regal manner and are worthy of your obeisance. Now if I could just get that song out of my head.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend eBay, McDonald's, and The Home Depot. 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.If you have questions about this post or the Fool’s blog network, click here for information.