Trick or Treat Stocks
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
October is historically a difficult month for stocks. Three of the worst market declines started in October with October 29, 1929 as “The Crash” that catalyzed the Great Depression. Then there was October 19, 1987 in which the Dow dropped 22.6% in one day. Finally, October 2008 ushered in the recession.
Investors have reason to be skittish before Halloween. Keep some cash in the candy jar for buying opportunities. But if you want a sure thing to invest in there’s always death and taxes. So, in keeping with October’s Halloween theme here are some tricks and treats.
Here’s The Trick
Think of Stonemor Partners (NYSE: STON) as the gnarly witch in the pretty princess mask who proffers a beautiful shiny huge apple with its 9.80% yield. But pull off the mask and the company has a frighteningly high debt levels which it calls in its own annual report, “... a substantial level of indebtedness.” Which they also admit in same 2011 report they can increase at any time. Currently total debt is $214.03 million to $7.79 million in total cash.
While they have that enticing yield of 9.80% don’t eat that apple, little girl. Stonemor Partners has negative earnings of $0.18 and is trading closer to its 52 week low than its high. The S&P 500 is up 19.81% over 52 weeks and Stonemor has slipped 17.02%. Even if analysts think they can bring in earnings of $0.15 sometime in 2013 the P/E would still be exorbitant.
Not to mention it is the worst performer among direct competitors Carriage Services (NYSE: CSV), Service Corp. (NYSE: SCI) and Stewart Enterprises (NASDAQ: STEI) but Stonemor’s bigger yield lures in dividend hungry victims. Stonemor also has held dilutive offerings to raise cash. What is most disturbing and creepy is their annual report also states (not in these words, of course) that the trend toward cremation and fewer people dying could decrease revenues. And you thought the family funeral home in ‘Six Feet Under’ had problems. And they didn’t have 272 cemeteries and 76 funeral homes like Stonemor. Even if these risks are overstated the stock performance, negative earnings and underperformance relative to competitors should scare you. Don’t visit this house with the witch offering you apples.
Now For Treats
Instead go to the rich neighborhood where you can get armfuls of chocolate candy and one nice treat is Hillenbrand (NYSE: HI) with a yield of 4.20% and a P/E of 10.93. Hillenbrand not only makes caskets in its Batesville Casket company and provides other funeral related services but it has evolved into an under the radar industrial with its 2010 acquisition of K-Tron which makes all kinds of crushers, grinders, screeners, feeders and pneumatic conveyors totally unrelated to the funeral trade. They have more debt than Fools like at a 2.05 ratio but this one has a low P/E and sustainable yield. Institutions hold 76% of the float and CEO Kenneth Camp holds 415,170 shares himself.
Death and Texas
I just had to put that in because maybe the best of all of these ‘death related’ companies is headquartered in Houston, Texas. For a safe treat you go to Service Corp. International which has a higher institutional hold at 81.90% but has a lower yield at 1.80% and an 18.47 P/E. Service Corp International is the big name in funerals providing ‘deathcare products and services’ in the US, Canada and Germany with 1435 funeral service locations and 374 cemeteries. The company has only a .76 debt/equity ratio and is up 34.53% over 52 weeks; double that of the S&P. The company also has a strong buyback program already up to $335 million in share repurchases.
As the largest provider of death services in North America an increased trend toward cremation will not be a problem for Service Corp International because it offers that service and related products. Founder and Chairman of the Board R.L. Waltrip still owns 914,795 shares. He grew up among his family’s funeral business and founded the company in 1962 as a licensed funeral director.
Lastly, Carriage Services has a higher P/E than Service Corp at 21.80 and a lower yield of 1.10%. Carriage Services just closed a senior secured credit facility for $235 million. It reports on October 29.
Stewart Enterprises has a P/E of 18.12 and a yield of 2.20% and reported Q3 earnings September 5 after the bell. It had seen some significant insider buying ahead of the earnings release and they must have known the numbers were good as they increased total revenue by $3 million and gross profit by $6 million. They also repurchased 1 million shares in Q3 cutting total shares outstanding by 5%. Stewart Enterprises is considered the number two name in the US funeral industry with 217 funeral homes and 141 cemeteries in the US and Puerto Rico. The yield has risen 60% over three years. Just be aware that Stewart Enterprises has a 74.55 debt/equity ratio.
All in all I think Service Corp. International is the one that reminds me most of the nice neighborhood lady with the handfuls of Snickers bars, the same lady who buys Girl Scout cookies even though she’s a diabetic and just tells the Brownies to keep the cookies for themselves. Sweet, safe and a dependable giver which is what you want at Halloween and the stock scary month of October.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Hillenbrand and StoneMor Partners. Motley Fool newsletter services recommend Hillenbrand and StoneMor Partners. 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.