9/27/2011 5:46 PM ET|
10 stocks you should know and love
3 for workout time
Stocks you know and love can come in more specialized areas.
If you regularly hit the gym or going out for a jog, you may have noticed that yoga has now hit craze status. "Yoga studios are popping everywhere," says George Whalin of Retail Management Consultants, in Carlsbad, Calif. And the stylish yogi can't strike a half-lotus tree pose without dressing for the part.
This means a trip to Lululemon Athletica (LULU, news), for stylish -- and pricey -- yoga outfits. At a time when consumers are cutting back overall, yoga fans drove up Lululemon's second-quarter revenue 39.5%. Sales at stores open more than a year advanced an impressive 20%, and earnings leapt 73%.
Lululemon still has plenty of room to grow, with only 151 stores in North America. It is expanding in Australia, too. And its new Ivivva Athletica line of dance and gymnastics clothing for young girls is a hit so far in Canada, where the company is based.
But I'd be careful with this one, because the price is relatively high. The stock trades for 36 times next year's earnings and 9.5 times sales. In contrast, Abercrombie & Fitch (ANF, news), another name you probably know from the mall, goes for 13.4 times earnings and 1.4 times sales. So I'd buy a limited position in Lululemon or wait for pullbacks in price.
Another thing you might notice when you're out for a jog is that technical and lightweight running shoes, like the Free and LunarGlide models from Nike (NKE, news), are all around. Also hot: Nike's signature Kobe Bryant, LeBron James and Air Jordan basketball shoes. Nike sales jumped 18% in the second quarter, and profits rose 19%. Its stock is trading near all-time highs. And it has built a "quintessential brand" with solid appeal abroad, where it's selling to an emerging middle class in places like China and Brazil, says Sarah Henry, a consumer sector analyst at Manulife Asset Management.
Another way to capture this trend is by owning shares of Foot Locker (FL, news). It sells popular running shoes from all the vendors hitting this trend, and not just Nike, says Keri Spanbauer, a retail analyst with Thrivent Financial for Lutherans. "Part of the appeal of the trend is that it is very broad-based across brands," she says. In July, Foot Locker reported a sixfold increase in profits for the second quarter on a 12% increase in sales at stores open more than a year. "Those types of results are unusual right now in retail," says Spanbauer. Foot Locker also pays a 3% dividend yield.
It's hard to mention stocks people know and love without naming Apple (AAPL, news), which has taken over the world of gadgets with its iProducts. Apple sales hit their highest levels ever in the second quarter, at $28.6 billion, an 82% gain over the year before. The company sold a record 20.3 million iPhones -- way more than the 8.4 million sold in the same quarter a year ago. It also sold a record 9.2 million iPads, compared with 3.3 million a year earlier. Sales of iPods and sales at iTunes were also robust. The "halo effect" spurred a 14% increase in Mac sales. All of this drove net income up 125% to $7.79 a share -- impressive strength that makes Apple look like an interesting buy in the current weakness.
Third-quarter profits were slightly disappointing, though. And the death of the iconic Steve Jobs will hang over the company for a while. Plus, Apple shares go for around 400 bucks each -- a fair price for a giant so many know and love, perhaps, but a hefty investment.
In fact, I think a better way to play the iPhone -- and the trend toward wider use of smartphones in general to access Internet content -- is AT&T (T, news), because the stock is cheaper. AT&T shares have gone nowhere in the past year, in part because of concerns that it has lost its status as the exclusive vendor of iPhones.
But iPhone sales are still robust, smartphone sales overall are growing, ahnd so are wireless data revenues. Meanwhile, AT&T pays a 6.1% dividend yield while you wait for everyone else to realize that loss of iPhone exclusivity isn't going to be so bad, which will send share prices up.
Estee Lauder in the pink
You might have noticed a lot more pink nail polish and lipstick, as well as darker gothic shades, on the ladies around you of late. These are some of the trends supporting robust strength in "prestige," or luxury, makeup, according to NPD Group, which does consumer research. During the first five months of the year, prestige makeup sales increased by 9% in U.S. department stores, says NPD.
Three of the five hottest brands, Estée Lauder, Clinique and M-A-C, are all owned by Estée Lauder (EL, news). This helps explain why sales at the company advanced 13% in the past year, and net earnings jumped 34%. Shares of Estee Lauder have been weak, recently falling below $95 from above $108 earlier this year. But it's hitting the trends right. That, plus international growth in areas such as China, should support the stock going forward.
Amazon rules online shopping
If you find it hard to resist the convenience of online shopping, you are not alone. Sales in North America at Amazon.com (AMZN, news), in the second quarter grew an impressive 50%, pretty astonishing when you consider that retail sales overall were sluggish. And we aren't the only ones loving Amazon. Worldwide sales grew 44% in the second quarter. Besides offering a wide selection of stuff at decent prices, all in one place,
Third quarter earnings were disappointing, but sales remained strong. And Amazon has had a hit with the Kindle, which it hopes to replicate with a tablet it's launching to compete with the iPad.
A good night's sleep
For years, Tempur-Pedic International (TPX, news), commanded a niche in the premium mattress business by offering a firm memory-foam mattress for people who needed more support. But this excluded anyone who preferred a softer mattress -- about half the population. Then it rolled out a softer version of its mattress, called the Cloud, and sales have taken off.
"They came out with the Cloud, and they doubled their addressable market," says Eric Marshall, director of research and co-portfolio manager of the Hodges Small Cap Fund (HDPSX). "They have been growing at double-digit growth rates in environment where mattress and furniture sales are horrible." Sales have also been rising, a trend that probably has not played out. Plus the company just authorized a new share buyback program -- which should help you sleep at night if you own this stock.
Editor's note: This article was updated Oct. 30 to include data from recent earnings reports.
At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column. During the past year, he has suggested that subscribers to his newsletter consider purchasing Exxon Mobil.
Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.
VIDEO ON MSN MONEY
I've got a great idea for all the protestors on Wall Street! Why don't you all start a commune where half of you can work and support the other half who don't.
Yes, it does take money to make money, but first, it takes hard work. This is often lost in politics. The curse of this nation is the people who feel they are entitled to a free ride. If you look at the government spending, most of it is "entitlement" money. I believe in a flat tax. Then, and only then will it be equal among all people - and eliminate the loop holes. Vote your heart - not your party. Dems and Repubs both have problems.
A Working Man said: "A wise man would be buying."
Archimedes was a very wise man too, until some Roman put a sword through him when he made the wrong decision... "Vo Victus."
History teaches these lessons over and over again but fools ignore them.
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