Three Companies To Keep Your Portfolio Warm

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

With the coldest winter weather still ahead, companies whose efforts bring warmth and comfort could be good investment opportunities. This article will discuss three such companies: NextEra Energy (NYSE: NEE), Wolverine World Wide (NYSE: WWW), and JetBlue Airways (NASDAQ: JBLU). These are undervalued compared to their peers based on a number of valuation measures, have good competitive positions in their respective industry, and also offer an exposure to international markets.

NextEra Energy

NextEra is a utility company based in Florida with 41.5 MW in operation, and serves customers in 24 states in the U.S. and three provinces in Canada. The company has 423.2 million shares outstanding for a market capitalization $30.3 billion and an enterprise value (EV) of $56.8 billion (it has $22.7 billion of long-term debt). The company pays a quarterly dividend of $0.60 per share for an annualized dividend yield of 3.3%. It offers a decent dividend yield while the share price trades at a price-to-earnings ratio of about 14, compared to about 18 for the iShares U.S. Utilities ETF (IDU) that tracks the Dow Jones U.S. Utilities index. Its price-to-book ratio is comparable at 1.9 vs. 1.6 for the ETF.

NextEra has exposure to one of the largest utility markets in Florida through its subsidiary Florida Power & Light, and to renewable energy through NextEra Energy Resources. In fact, NexEra Energy Resources is the largest owner of wind assets in the U.S. and among the largest in Canada. And in terms of profitability, NextEra has a net income margin of 14.6% (based on trailing twelve months) compared to 9.5%, 13.5%, and 8.7%, respectively, for its largest competitors Duke Energy, The Southern Co., and Dominion Resources.  At the same time, NextEra has one of the highest leverage with a debt to equity ratio of 1.7 compared to debt to equity ratios of 1, 1.1, and 1.7 for Duke, Southern, and Dominion, respectively. High profit margins and high leverage increase NextEra's stock price, while the exposure to different energy sources (wind, nuclear, natural gas) and regions and the relatively stable nature of the business, make it a solid investment.

Wolverine World Wide

If you have heard about Sperry, Stride Rite, Hush Puppies, Keds, Saucony, and Merrell you probably did not know that the company behind these (and other) brands is Wolverine World Wide. The company acquired Collective Brands' performance and lifestyle group (PLG) in 2012 for $1.23 billion, or ten times PLG's 2012 earnings before interest, tax, depreciation, and amortization. Wolverine has 49 million shares outstanding for a market capitalization of $2 billion and EV of $1.9 billion (it has more cash than debt). It pays a quarterly dividend of $0.12 per share for an annualized yield of 1.2%. The company has an estimated price-to-earnings ratio of 14 and its current price to sales ratio is 1.4. For comparison, some of its major competitors such as Deckers Outdoor, Crocs, and Steven Madden have 2013 estimated price to earnings ratios of 10.2, 10, and 14.1, respectively, and price to sales ratios of 1, 1.3, and 1.7, respectively.

While Wolverine seems overvalued compared to Deckers and Crocs, and about the same valuation as Steven Madden, Wolverine is the only company that pays a dividend, not to mention it has the lowest beta of 1 compared to betas of 1.3, 1.5, and 1.5 for Deckers, Crocs, and Steven Madden. Also, Wolverine offers the largest shoe portfolio, with 16 major brands covering a variety of styles, ages, and genders. For example, Deckers relies mostly on UGG, Crocs on its foam-based shoe design, and Steven Madden on stylish footwear. Finally, Wolverine has relatively broad international exposure, as it derives 40% of its revenues (based on 2011 information) from international markets, compared to 31.4%, 64.5%, and 5.5% for Deckers, Crocs, and Steven Madden, respectively.

JetBlue Airways

If heat and warm footwear are not enough to keep you warm, one option is to take a Caribbean vacation or a trip to the southern states with JetBlue. JetBlue has 284.3 million shares outstanding for a market capitalization of $1.7 billion and an EV of $3.5 billion (airlines are capital intensive). The company has over 180 daily flights to and from the Caribbean and Latin America and offers flights from major east and west coast cities to popular tourist destinations in the Southern U.S.

While JetBlue is a leader in flying to “fun” destinations, it is also increasing its business travel share, and is the number one airline by seat share in Boston at 23%. Compared to those of some other airlines, JetBlue's common stock appears undervalued based on a number of measures. Most importantly, JetBlue has a price-to-earnings-to-growth (PEG) ratio of 0.3, which is comparable to the PEG ratios for Spirit Airlines, Alaska Air Group, Delta Air Lines, and Southwest Airlines of 0.3, 0.6, 0.2, and 0.3, respectively. Also, JetBlue is the only company that trades below its tangible book value, which signifies that this is a classic value investment stock. JetBlue is a relatively new company (it started operations in 2000) and it has the worst profitability among its competitors, with a net margin of 3%. However, the company recently ranked at the top of a North America satisfaction survey by J.D. Power, and this, together with its continued efforts to improve profitability while growing, bodes well for investors.

Conclusion

There are many ways to keep warm during the cold winter months. NextEra, Wolverine, and JetBlue allow consumers to gain exposure to the “keep us warm” market at reasonable prices. In addition, these companies are leaders in their areas and individually or in combination seem like solid long-term investment choices.

 

NEE

WWW

JBL

Market Capitalization*

30.4

2

1.7

Enterprise Value*

50.6

1.9

3.5

Price-to-earnings (2013)

14.5

14

10

Price-to-book (tangible)

1.9

3.2

0.9

Dividend Yield

3.3%

1.2%

0.0%

Price-to-CFO (trailing)

7.4

15.4

2.4

Source: Reuters, company filings, and author's estimates; CFO – cash flow from operations; *In U.S. billions


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