The Kings of Cool: Cramer's Lifestyle Index
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Jim Cramer's brand new Lifestyle Index picks chosen by branding guru FUBU CEO Daymond John includes Apple (NASDAQ: AAPL), Visa (NYSE: V), MasterCard, Nike, Walgreen (NYSE: WAG), Facebook, Yahoo!, and Urban Outfitters (NASDAQ: URBN). I wasn't surprised to several favorites of mine listed as these companies are coolness personified. Which are the most promising?
The big Apple
I never doubted that Apple was still cool. As Daymond John, CEO of FUBU clothing put it on the April 11 airing of Mad Money, Apple was like the prettiest girl at the party, but as you got drunker everyone (and their tablets and smartphones) looked attractive.
Have a cup of joe and sober up. John said Apple is still "amazingly cool" with a yield of 2.50% at an easily sustainable payout ratio of 12.00% with a 9.08 P/E. If you didn't know this was Apple, with a .52 PEG and the lowest corporate governance risk score of only 1 and no debt, you could easily assume it was a consumer staple, maybe a cereal company based in the Midwest.
Only nine months ago Apple was the company with the largest market cap in the world, outstripping Exxon Mobil. Rival Samsung has been gunning for Apple with its release of a large phone/tablet the Galaxy Mega, straddling sizes between a smartphone and a tablet as well as cheaper, but perfectly adequate alternatives to iPhones. Amazon and Google have been competing against Apple on cloud and tablets, but neither has the appealing valuation of Apple (although I like Amazon as a momentum name).
Apple reports April 23 and the stock is down almost 25% since the beginning of the year. The company has missed estimates for several quarters. Rumors of decreasing Apple orders at parts supplier Foxconn were given more credence on April 17 by Cirrus Logic's report on declining sales of certain chips sending Apple's share price crashing below $400.00 only to close at $402.59.
But all is not lost, Piper Jaffray's Gene Munster, formerly one of the most bullish analysts on Apple is back in the herd again. He came out with a report that teens want iPhones and iPads more than other brands, saying, "Apple remains the top choice for teens." See, I told you Apple was still cool.
The hippest of hip
Urban Outfitters is a founder run company with CEO Richard Hayne back at the helm. Its clothing and home accessories are targeted to trendy young men and women. Brands include: Free People, Beholdn (hip wedding clothes), Urban Outfitters, Terrain (home and garden), and Anthropologie for a total of 475 stores. It also has very effective and cool e-commerce sites for each brand as well as catalogs. Those direct-to consumer net sales increased 31% in 2012.
Urban Outfitters reported Q4 and full year 2012 results on March 11. Of special note was the 104% increase in Q4 operating profit and improving gross profit by 212 basis points on decreasing merchandise markdowns. In other words, their clothes are moving.
It has a P/E is 25.51, a forward P/E of 18.44, and a PEG of 1.35. Analysts expect a five year EPS growth rate of 15.38%, better than the industry's 12.07%. Their median price target is $46.50 for 10% upside. Barclays and Ascendiant Capital Markets initiated coverage in the last month with ratings of Overweight and Buy respectively.
One concerning issue is that CEO Hayne sold 898,063 shares at $38.87 a share in March. However, he still has 19,404,188 shares remaining as of March 24. Goldman Sachs and FMR LLC both believe in the name with 7% stakes.
John likes the name for its unique merchandise that he calls "a bit quirky."
A destination retailer
Walgreen is certainly the oldest company of all these founded in 1901 but like Johnny Depp just gets cooler with age. Its one stop health and wellness stores with floors devoted to beauty products and grooming services (manicures and eyebrow shaping) and fresh food court make waiting for a prescription fun. Its health concierges wielding iPads (there's Apple again!) and nurse practitioner staffed Take Care health clinics are making health care convenient even for those with chronic conditions like diabetes, asthma, and high blood pressure.
As John noted the company has reinvented what a drugstore is with the purchases of Duane Reade and Alliance Boots. Cramer also liked their new strategic partnership with Amerisouce Bergen, a pharmaceutical distributor. All these bode well for a strong supply chain and growth abroad.
This is the sole Dividend Aristocrat of the Lifestyle Index having raised its yield for 37 years. It has paid a dividend continuously since 1933. The yield is 2.30% at a payout ratio of 47%. The P/E is 21.46 but going forward drops to 13.08.
The stock has run 46% in the last 52 weeks as Walgreen recovers from the fallout with Express Scripts. Analysts expect 12.88% five year EPS growth. Don't forget the ever-rising yield!
Just one word...plastics
Finally, John liked Visa. He said we're all broke and putting money on our plastic. More transactions means more money in Visa's pockets. Visa's profit margin is 22.46% and its operating margin is 59.93%.
Visa is a great way to play the famous line, "Plastics...There's a great future in plastics," from The Graduate. Visa may not be coolness personified except to shareholders who've enjoyed some very cool profits as share price has risen 36% in the last year alone.
Its P/E is pretty pricey at 46.15, but drops down to a forward P/E of 19.52. Ironically maybe, the company has no debt. Analysts see an 18.30% five year growth rate but that is a decline from the smoking 27.95% rate of the last five years. Long term, credit card companies may be pressured by the mobile wallet trend.
Visa has a yield of .80% at a 39% payout ratio. Its corporate governance risk is a favorable 2.
A Fool takeaway on cool
All these companies are interesting cool plays on financials, health care, retail, and tech. On valuation, Apple stands tall on valuation but sentiment is bearish.
For growing yield there's Walgreen, but for the hipper (or hipster) Urban Outfitters is a good name. Lastly, Visa has been a reliable outperformer and plastic isn't going away.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Apple and Visa. The Motley Fool owns shares of Apple. 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!