Outrunning Zombies

AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If the world ends on 12/21/12, we'll need to be fit to outrun the zombies. To that end (of days) a hotel in San Diego is offering a last supper and fitness classes. I assume the last supper is a carbo load special. Even if the world doesn't end this is the time of year when people will overeat and overdrink and then make those New Year's resolutions to get fit. Several stocks usually benefit from these half hearted attempts.

With Herbalife cratering on news that famed investor Bill Ackman of Pershing Square Capital Management is shorting the stock there are several superior plays: Weight Watchers International (NYSE: WTW) , Life Time Fitness (NYSE: LTM), Nutrisystem (NASDAQ: NTRI) , Nike (NYSE: NKE), and Town Sports International Holdings (NASDAQ: CLUB). It may not seem that you need speed to outrun zombies, unless they were marathoners from Ethiopia, but you never know.

Fitties vs. Zombies

Town Sports International runs 160 fitness centers in major metropolitan centers, in the Northeast, like NYC, Philadelphia, Boston, D.C, and three in Switzerland. It's not quite a small cap at 248.13 million. Somewhat volatile, Town Sports has a trading range of $7-$14 per share and a beta of 2.39. It has a P/E of 16.01. On December 11 it paid out a one time cash dividend of $3 and sought debt to fund it. Since that special payout the stock has traded down almost exactly $3.00 so before the New Year may be a good time to get in as its 52 week low was in January 2012 and it doubled by July.

Analysts expect a five year growth rate of 10% per annum and all corporate governance risks are low, but the cash conversion cycle is weakening according to Fool Seth Jayson. This one will bear watching especially if the Northeast has a colder winter keeping "fitties" from working out outside.

Lifetime Fitness is another fitness center name, which owns and operates 105 centers in the US and Canada. Not only does it offer the 24/7 centers but also nutritional supplements and fitness assessments. The centers do not offer or require long term contracts which may be particularly attractive to those whose New Year's resolve isn't that strong. Again, all corporate governance risks are low. This is a mid cap name and has a P/E of 19.01 with a forward P/E of 15.49. This name has a very large debt to equity ratio of 668 million in debt to cash of 8.62, however. Looks like their debt could use a personal trainer in the New Year. This name has a large short interest of 17.40%. Like Town Sports, it did trade up, from the beginning of 2012 to May it ran from $38 to $52 a share.

Weight Watchers, the weight management company specializes in online and meeting supported sensible eating and exercise programs. It has a $3.02 billion market cap. This company has up and downs on earnings like a yo-yo dieter with a 12% surprise last earnings release and a miss in the spring. The company's programs in the US, UK, Australia, New Zealand, and continental Europe, are very affordable either online or for meeting fees running between $20-45 a month. It also has the largest market share of the billions spent on organized programs to lose weight at 3% out earning competitors with 2012 revenue expected at almost $2 billion.

Weight Watchers is a much better investment than rival Nutrisystem which costs between $300-400 a month for its dietetic meal plan despite the very high yield of Nutrisystem at 8.70%. Cash flow this year so far at $18 million doesn't cover the $20 million to be paid out.  This sends out a red flag although their dividend payouts have been consistent in the past but now the payout ratio is over 2,000%! The P/E of over 250 is another red flag even though the stock is closer to its 52 week low than its high. The market cap is $221.77 million and it's thinly traded so with a profit margin of 0.27% this name is one to push away from the table.

If you plan to outrun the zombies of the apocalypse you better be well-shod. Before reporting 2013 Q2 earnings on December 20, Nike sported a 21.51 P/E and a 0.80% yield. The company reported revenues of $6 billion and EPS at $1.14 and future orders were up 6%. On the downside, gross margin decreased mainly due to foreign exchange and a higher tax rate. Just in the last few months Nike divested itself of the Cole Haan (more streetwear than athletic wear) and the soccer-themed Umbro brand to stick to its knitting in its core athletic shoe and apparel categories. The stock traded up over 5% after hours.

Buying it here after earnings may still be zombie-approved as it is the world's leading athletic wear manufacturer with top of the line brand recognition and loyalty. The sought after shoes will probably do well this holiday season and so earnings in March should be even better. The sale of non-athletic units has also made it leaner and meaner, advantageous in sprinting from zombies.

The End (of The World?)

If you're reading this, the world didn't end but Nike, Weight Watchers, Club and LifeTime Fitness will probably run further in the New Year. Stay away from Nutrisystem despite its alluring yield. Enjoy your New Year zombie-free.


leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Nike. Motley Fool newsletter services recommend Nike. 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!

blog comments powered by Disqus