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Top Stocks as Americans Turn to Value
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ShareStocks are up dramatically since the historic tumble that ended a year ago, but we are far from in the clear. The economy is on shaky ground and with unemployment still near 10%, consumer spending and confidence continue to waver.
However, people have slowly returned to the malls, dining out and other discretionary activities, but there is one big caveat. We are much more cost conscious than a few years ago now that houses can't be used as ATMs and jobs are unsecure. Not to mention, we may be better off searching for leprechauns than credit.
The New Consumer
Despite the drastic differences in cash flows, people are back to spending, reluctantly. The higher end luxury brands are also seeing an uptick, but not nearly as much as the lower price point goods and services.
Essentially, everyone lowered spending habits over the past few years, but recently the upper tier went back to upper tier products as the former middle tier spenders continues to bargain hunt.
How to Cash in
I used the Research Wizard to weed out the overvalued stock with out solid earnings to find these companies that offer retail products at a reasonable price. These 3 have a Zacks Rank of #2 or better and a forward P/E under 15 times.
Dominos Pizza (DPZ) needs no introduction. Consumers who had tossed pizza night aside in the midst of financial hardship are back and Dominos could not have picked a better time to unveil their new recipe. They have always been known to provide cheap pizza, but now their new campaign is pushing their new and improved quality.
Estimates continue to rise for the Zacks #1 Rank stock. After 14 upward revisions for full-year 2010, the consensus is up 8 cents to $1.01, which is a 16% growth rate. Forecasts for next year are projecting a 19% growth rate after the consensus rose a dime to $1.21.
In the theme of cash-strapped consumers, we wont be over paying either, with a forward P/E of just under 15 times. Shares have surged recently, but don't think you are overpaying. I better move on, I am getting a bit hungry.
Collective Brands (PSS) is a retailer and wholesaler of footwear and related accessories. The company operates worldwide under brands such as Keds, Airwalk and many more. Additionally, they operate Payless shoe stores, which focus on lower price points and great deals.
Currently the Zacks #2 Rank stock is expected to report 12% annual growth in fiscal 2010, which will be reported on March 9th. Next year’s consensus is $1.62, which represents a 28% increase. Right now, the shares are trading at under 15 times forward earnings.
Heading into the upcoming earnings release shares are trading near the recently set 52-week high, so the news could be the catalyst to send shares even higher.
Dollar Tree (DLTR) is pretty self explanatory, they operate a chain of stores that sell a variety of good for, you guessed it, a dollar.
This Zacks #2 Rank stock continues to see new estimates come in above the consensus. In the past 30 days, there have been 18 upward revisions, bringing the average up to $4.15, from $3.85. Next year’s projections are averaging $4.69, up from $4.25 on 7 revisions. These levels represent growth rates of 16% and 13% respectively.
While shares are running a bit higher than a dollar, they won't cost you much. The forward P/E ratio is just above 13 times forward estimates. The PEG ratio is coming in a solid 0.9 times.
Now, these estimates for DLTT did not shoot up over night. Below is a chart of the consensus estimates and their changes over the past 5 years. They have been on the rise consistently, but have seen a huge jump in the recent downturn.
Fiscal Responsibility is in Again
Spotting trends in consumer behavior is a great way to make money in stocks. Just look at what your friends, neighbors and you are doing. We are spending less, but we are spending, so just look where the money is going and set yourself up to reap the benefits.
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| Market Summary | Feb 10, 2012 10:36 am ET |
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