Though summer is traditionally a sluggish time for retail, it doesn’t mean investors should shun the entire sector. This can be an excellent time to take a look at companies that, while perhaps down on the year, possess the fundamentals to grow substantially.
As usual, the question is, “which ones?” Glad you asked.
METHODOLOGY
To find consumer goods stocks with a high chance of growth, we looked for companies that possessed the following attributes.
1) Current Ratio Greater than 1.5: Consumer goods is a cyclical and fickle industry, its important for a successful company to have significant amounts of cash on hand relative to their liabilities.
2) ROA Greater than 20 Percent: Also referred to as ROI, this tells how the company is making income out of its invested capital. Consumer goods depends many times on product differentiation, ROA can show that.
3) Gross Margin Greater than 10 Percent: Using profit margin eliminates too many good companies. The industry is extremely competitive, so the profit margins are whittled down. Gross margin is a better tool in this case.
4) Expected Earnings per Share Growth of 15 Percent or More: An investor can look at all the metrics they like, but eventually they are going to want to see it all translate into earnings attributable to stockholders.
FINDINGS
After searching through all the available consumer goods investments currently trading on either the NYSE or NASDAQ, we found six stocks that fit our requisite criteria. They are:
Lululemon Athletica (LULU)
Price: $44.77
2014 Performance as of May 11: -24.16 percent
This purveyor of upscale yoga clothing has exploded in popularity the last few years. It received a major blow earlier in the year when its CEO announced she was stepping down.
Arctic Cat Inc. (ACAT)
Price: $40.63
2014 Performance as of May 11: -28.53 percent
Minnesota-based Arctic Cat manufactures ATVs, personal watercraft, and snowmobiles. Or, if you’re in the know, “snow machines.”
Fox Factory Holding Corp. (FOXF)
Price: $17.15
2014 Performance as of May 11: -2.67 percent
Like Arctic Cat, Fox manufactures all-terrain vehicles and snow machines. They also produce mountain bikes and motocross.
Vince Holding Corp (VNCE)
Price: $26.69
2014 Performance as of May 11: -12.98
This clothier manufactures both men’s and women’s products under their high-end namesake line Vince. This Chesterfield, MO-based company also markets clothing under the brands Rebecca Taylor, David Meister, Sag Harbor, My Michelle and XOXO.
Delphi Automotive PLC (DLPH)
Price: $67.39
2014 Performance as of May 11: +12.50 percent
The automotive parts manufacturer Delphi is based out of Kent in the UK. The company filed for Chapter 11 in 2007 before enacting a so far successful turnaround plan.
Herbalife Ltd. (HLF)
Price: $44.77
2014 Performance as of May 11:
This herbal supplement supplier is an incredibly controversial company, employing a pyramid scheme-like selling structure that has deeply alienated a vocal portion of the investment community. One of the most fervent has been activist investor Bill Ackman, who has made it a sort of raison d'être to “expose” the company as a fraud due to collapse at any time.
Whether Herbalife really is a pyramid scheme is up for debate. But for the time being, Herbalife continues to soar, notching gains year after year.
