Why investors want Crocs, Corning, Dollar General

The stock market pullback gives traders a chance to consider 3 names that have gone from cold to hot.

By TheStreet Staff Nov 28, 2012 1:49PM

 Stock market report copyright CorbisTheStreet LOGO

By Marc Courtenay


Having just caught a glimpse of a brief video clip titled "The Top Ten Stocks for Nov. 27," I wanted to share three companies that are suddenly back in favor.


Let's begin with one that some mistakenly thought had no future. I'm speaking about Crocs (CROX), the worldwide maker and distributor of sassy but comfortable footwear, apparel and accessories for men, women and children.


The stock jumped over 9% after Goldman Sachs analyst Taposh Bari gave the creator of those colorful plastic shoes a "buy" rating, saying that investors have misinterpreted the shoe brand as a fad.


"We see Crocs as a lifestyle brand with global appeal that appears both proven and sustainable," he wrote in a note to investors. The stock put in a 52-week low price of $12 on Nov. 15, but on Tuesday it leaped to $13.49 on heavier than normal volume.


CROX trades at 8.65 times forward earnings, has very little debt, has over $315 million in total cash (as of Sept. 30) and a price-to-earnings to growth (PEG) ratio of only 0.90. All these factors indicate a stock that is undervalued, so no wonder the upside response was so positive.


Below is what I'll call "the chart of the day." It shows the one-year price movement of CROX versus its retained earnings. By that measure this company may just end up on some big predators' takeover wish list.

chart 1   

Another underrated name that received a good deal of attention Tuesday was Corning (GLW), which pays an attractive dividend yield of around 3%. In Tuesday's trading GLW spiked almost 7% after it forecast stronger than expected retail demand for consumer electronics in the fourth quarter.


Corning is the world leader in specialty glass and ceramics. Drawing on more than 160 years of materials science and process engineering knowledge, Corning creates and makes keystone components that enable high-technology systems for consumer electronics, mobile emissions control, telecommunications and life sciences. GLW also alluded to stronger demand for new televisions in the U.S.


The company is even saying China will buy lots of new TVs and other electronics as that country gets ready to celebrate the New Year's holiday. Optimism is as ubiquitous as the number of shares traded on Nov. 27, over 42 million compared to its average daily trading volume of less than 14 million shares.


Below is the one-year price chart for GLW with its retained earnings and its price-to-book value, which as of the most recent quarter was only 0.77. This may be the second most impressive chart of the day. Pay close attention to the direction of retained earnings.

chart 2

The generous dividend that GLW pays represents a payout ratio of only 24% of earnings. This means not only is the dividend sustainable, it's likely to be increased in the year ahead. This stock still looks like a bargain from my perspective.


Finally, there's good old Dollar General (DG), a company I've written about before. It's still my No. 1 pick when it comes to discount retail stores, and by many measures it makes Wal-Mart's (WMT) stock look expensive.


To make matters sweeter for DG, it will be added to the benchmark S&P 500 ($INX) after the close of trading on Friday. It'll take the place of Cooper Industries (CBE), which is being consumed by Eaton (ETN).


So every fund and every manager that claims to duplicate the action of the S&P 500 will be buying DG shares real soon and in significant numbers. It's difficult to know how much this may help the price of DG, but the analyst consensus of a one-year price target near $61 is beginning to look more doable.


DG will be announcing its latest quarterly numbers on Dec. 11, and if the Thanksgiving weekend retails sales estimates were accurate, it wouldn't surprise this analyst if DG surprises to the upside. Consider buying some on the next down day and then wait for the earnings details to come.


Who says there are no bargains to be found in stocks? CROX, GLW and even DG are attractively priced and have the retained earnings and revenue (and some special circumstances) that should make investors smile throughout the remainder of 2012 and into the new year ahead.


As of the time of publication the author has a position in DG.



More from TheStreet.com

Nov 28, 2012 7:57PM
The market is betting on inflation in 2013. I think they are right. Deflation would crash the financial markets and bring real estate back down.  Bernanke wants inflation.
Until,& hopefully this "fiscal cliff" crap is over i am not going to put any more into my stock acct. no matter how good of a deal a stock purchase is. If the budget dispute is positive and will be passed then i will consider buying some different stock other than what i have now. I have to think of the future and what it holds before investing anymore.
Nov 28, 2012 7:31PM
How is the cliff hanger going? Did Obama bend over yet?
Nov 28, 2012 7:11PM
Wearing crocs is kind of like getting oral from a guy. It feels good until you look down and realize you're gay.
Nov 28, 2012 6:39PM
Enquiring minds want to know, Why is the market up today?
Nov 28, 2012 6:38PM
Maybe because Romney is visiting the White House, the market is up?
Nov 28, 2012 6:27PM

Good day on the DOW, could it be the inflation headwinds?

Nov 28, 2012 5:53PM

Goldman Sach's analyst- Success is a lousy teacher, it seduces smart people into thinking they can't lose. quote- Bill Gates

Nov 28, 2012 4:46PM
crocs, I don't see people wearing those ugly shoes that much anymore. I used to see a lot of them.  
Nov 28, 2012 4:37PM
I heard some people think a dollar general brings the neighborhood down? I wasn't sure what they meant. Maybe the customers or something?  
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