3 Outperforming Consumer Stocks To Buy
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Significant outperformance or underperformance with respect to the broader market is often a sign that something interesting is happening in a company. Analyzing fundamentals of such a company is often the first step in identifying potential investment targets. I screened consumer stocks which have significantly outperformed the broader market in the last one month. The following three stocks look interesting:
Here’s a look at these stocks in detail.
Ford was able to beat 3Q12 estimates significantly with EPS of $0.40 vs. consensus estimate of $0.30. This tremendous performance was helped by continuous improvement in the North America market. It earned a $2.3B pretax profit, which is highest since 2000. It is also focusing on capacity building of ~400K units by the end of 2012 and has a strong product pipeline including “New Fusion” and “Escape.” With the improving North American market combined with its focus on growth, I feel it will continue to post good profits in the coming quarters.
Although the European market is not showing signs of recovery, Ford’s recent announcement of restructuring plans for its European market will help it save ~500M annually. As a part of the plan, the company will shut down Genk, Belgium and Southampton, UK assembly facilities, as both of these plants are under-utilized. In addition to this, it has plans to launch 15 new products by 2018, under its “One Ford” plan, which is expected to accelerate growth in the European market.
Furthermore, its South American market will benefit by new launches including “EcoSport” and “Ranger” which will increase its bottom-line. It has also planned for new launches in Asia Pacific region. It will launch new SUV models (Kuga & Ecosport) in China, which will help it improve its sales.
With the globally improving business environment, Ford is expected to have a cash surplus of ~$4B in 2012. The company may distribute part of its cash surplus to its shareholders in 2013 in the form of dividend. I think the growth prospect for Ford is looking very good and will rate it as a buy.
Big 5 Sporting Goods
Big 5’s stock has jumped ~46% reaching to $13.09 after it released its 3Q12 earnings reports. The company showed positive momentum in 3Q12 sales as it increased to $251.8 million from $234.7 million in 3Q11 showing a growth of 7.3%. These sales were driven by the July 4 holiday and warmer western coast in August and September this year.
Continuing with its sales upside, its same store sales also increased by 5.2% in 3Q12 compared to last year’s 3Q11. Its SSS increased in each of its main product categories such as hard goods, footwear and apparels across all geographic regions through improved merchandise classification and correct pricing strategy. Also gross margin increased to +20 bps in 3Q12 from -60 bps in 3Q11 which is expected to continue in the same mode with the coming holiday season of 4Q12.
With plans to increase its footprint, the company plans to open 7 new stores by 4Q12 bringing the total count of stores to 414.
Also, the company presented a strong balance sheet in 3Q12 with improved operating cash flow of $40 million in comparison to last year. It has declared a quarterly dividend of $0.075/share in 3Q12 and a share repurchase of 105,100 shares worth 0.9 million during the third quarter. Even after this buyback, the company is left with $10M out of its $20M share buyback authorization.
Going forward, I can see an upside potential for the stock backed by its strong last quarter earnings and regular buybacks. Additionally the company's forward P/E is 14.18x which is the lowest compared to its peer group. Its closest rivals Dicks Sporting Goods has forward P/E of 17.46x and Hibbett Sports has 17.86x.
Paccar reported low 3Q12 revenue for the Europe region down 21% Y/Y as against the estimated 15%. On the other hand, despite the European slowdown, earnings from the other regions grew ~27% Y/Y.
For the future development perspective, Paccar is making investments for geographical expansion and in its R&D department in 2013. In particular, it will be making a capital investment for the construction of DAF factory and also to support the existing “Kenworth” trucks in Brazil. The R&D department investment is estimated to be in the range of $275-$325.
Along with these investments, Paccar will also increase its range of engines. The Paccar MX-13 engines are designed to increase fuel efficiency, reliability and low cost of total ownership. The engine includes a common-rail fuel system which will increase efficiency by maintaining injection pressures of 2,500 bar. This enhancement is made to meet the customer’s power requirement with increased horsepower and torque.
Additionally, U.S. and Canada’s Class 8 retail sales is expected to be ~2.4K vehicles in 2013 as compared to ~2.20K in 2012, led by the on-going replacement of an aged fleet which continues to drive new truck purchases. Paccar marked the record high market share of 29% due to the lower operating cost of its “Kenworth” and “Peterbilt” vehicles. Paccar still maintains its leadership in the tractor market with a 19 per cent market share and in the truck market with a 16 per cent market share. With these growth prospects PACCAR seems to be a well-managed firm for future investment.
Interested in Additional Analysis?
Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. But Ford’s stock seems stuck in neutral. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of The Motley Fool’s top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford and PACCAR Inc. Motley Fool newsletter services recommend Ford and PACCAR Inc. 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.