3 Stocks for an Unequal America
Federico is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The US is back to growth but wealthier families are benefiting much more than the rest. A research study from the Pew Research Center says that, since 2011, the richest 7% grew their wealth by 30%. Meanwhile, the net worth of the rest of the country fell by 4%. According to the research study, this result was expected. After all, richer people are the ones who benefit the most when real estate and equity markets recover. Here I want to propose three companies that should benefit from this ongoing trend.
Luxury is back in fashion
Coach (NYSE: COH), based in New York, is one of my favorites among luxury goods companies given its potential growth and current market price. The company showed that its efforts to stabilize its North American operations (66.5% of total sales) are successful. Total North America revenues (at $792 million) were up 7% year-over-year (YOY), a huge improvement from last quarter. Besides, the region's retail same store sales were up 1%, versus a 2% decline in the prior quarter. Most importantly, Coach is also ameliorating gross margins (which were up by 0.34% to 74.1%). These positive trends in Coach's US business should remain intact going forward thanks to the current upward trends in luxury consumption. Trading at 2013 14.5 times P/E and paying a 2.3% cash dividend yield, I think you should follow Coach closely.
Macy's (NYSE: M), one of the biggest operators of department stores in the United States, is also profiting from the growth in the net worth of America's upper classes. The company not only is growing same store sales 3.8% YOY but also improving operating margins up to 6.8%. Great performance can be attributed to great strategies. The company is following the same strategies it instituted four years ago (in an industry that is replete with strategy changes). Macy’s has been gaining share through consistent execution based on centralized decision making, strengthened by local input. Going through a high growth period in the FAB (footwear, apparel and beauty) categories of merchandise, I think you should take a look at Macy's. The retailer trades at 2013 14.3 times P/E, has increased its dividends by 25% (to a 2% yield) and has also increased the buyback authorization by $1.5 billion.
One expensive food retailer
Whole Foods Market (NASDAQ: WFM) is the most relevant luxury food retailer in the US. High prices and high quality combine perfectly to offer the best products while producing top-notch margins for the company. Performance is also high quality. Whole Foods's same-store-sales are growing at a 6.9% YOY rate and the company is also improving margins. Last quarter gross margins came at 36.4% while operating margins also improved to 7.5% of sales. On the other hand, the company is following a successful strategy of opening new stores in smaller markets, this smaller stores are expected to take top-line growth to the next level.
Taking out the $1.17 billion Whole Foods keeps in net cash, the company trades at 2013 33 times P/E but it is also growing EPS and sales by 18.75% and 13% YOY, respectively.
With the exception of Coach, which is also growing very fast abroad (40% YOY top-line growth in China), all the companies named above depend heavily on the mood of high income US consumers. With the stock market reaching historical levels and real estate in fast recovery mode, I think they are a good bet.
Federico Zaldua has no position in any stocks mentioned. The Motley Fool recommends Coach and Whole Foods Market. The Motley Fool owns shares of Coach and Whole Foods Market. 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!