http://www.scribd.com/doc/76327556/Fuhrmann-Capital-2012-Stock-Market-Outlook
Please also feel free to contact ryan@fuhrmanncapital.com for a copy!
The past year has been a mixed one for leading firms in the defense and aerospace industries. Defense firms have been subject to significant budget cutbacks in 2011 while aerospace has been caught with global growth headwinds. The coming year could see much less turbulence. Below is an overview of the valuations and business outlooks for the coming year on important firms to watch in the industry.
Creative software product provider Adobe Systems (Nasdaq:ADBE) closed the books on its fiscal year on Dec. 15, 2011, and returned to posting double-digit sales and profit growth. Its end markets have vast growth potential, and though competitive threats continue to loom from a number of archrivals, Adobe is proving that its customer base remains loyal to its products and services.
Earlier in December, casual dining operator Darden Restaurants (NYSE:DRI) pre-announced disappointing second-quarter results, as its largest restaurant concept is struggling to grow sales at existing locations. Higher food costs are also denting near-term profits, but Darden’s long-term growth trends remain on track and look quite impressive. Better yet, weak near-term share price performance means very little of this growth is built into the valuation.
In a recent investor presentation, for-profit educator Devry (NYSE:DV) detailed its belief that “quality leads to growth.” Namely, this includes high graduation and job placement rates after graduation. Growth trends in the near term have been uneven, but a low valuation leaves plenty of upside, should these trends return closer to historic levels.
So far in 2011, the financial group is by far the worst performing sector and has posted a negative return of more than 21%. And with financials making up 13.3% of the S&P 500, they have been a significant lag to overall index returns. Fears over sovereign debt levels and flagging growth in Europe have been a primary concern lately, but could spell an opportunity for brave investors willing to bet that the problems in Europe will be worked out over time.
Avon Products (NYSE:AVP) has a compelling business model that sells cosmetics, fragrances and related products directly to consumers around the world. Unfortunately, for a number of years now it has wasted its advantage of being able to avoid the fixed costs that come with operating retail stores, but the removal of its CEO offers a renewed opportunity to bring in a leader who can boost profits back to more respectable levels.
Due to overall stock market weakness, the share price of Stryker Corp. (NYSE:SYK) is quickly trending back toward its lows for the year. At the current valuation, the stock offers the potential for above-average shareholder returns with modest downside risk.
Posted: December 15, 2011 7:17AM by Ryan C. Fuhrmann , CFA
In his book “Ron’s Road To Wealth,” well-known investment manager Ron Muhlenkamp detailed that the average life expectancy for Americans was 63 years of age back when the Social Security Act was passed. The act set the retirement age at 65, which meant that, on average, individuals could expect to collect retirement benefits for a couple of years. He also pointed out that there were 40 workers for each retired individual back around when the act was passed.
Big-box electronic retailer Best Buy (NYSE:BBY) failed to ease investor concerns about its competitive position when it reported third quarter results on Dec. 13, 2011. An onslaught from online rivals and other big-box peers is continuing, but the fact that most investors have left the stock for dead suggests the potential for future upside.
The Pantry (Nasdaq:PTRY) bills itself as a leading convenience store operator in the Southeastern part of the United States. Sales trends have been solid in recent years and the valuation is at rock-bottom levels, but the company is struggling to boost profits consistently and is heavily indebted.
In the face of an anemic overall stock market so far this year, rural convenience store operator Casey’s General Stores (Nasdaq:CASY) has returned about 20% for its shareholders. Its operating trends are also holding up well, as it indicated recently by releasing fiscal second quarter results. The earnings multiple isn’t overly appealing, but the firm has an impressive growth track record and a competitive advantage compared to its rivals.
Posted: December 12, 2011 1:57PM by Ryan C. Fuhrmann , CFA
Back in 2005, shortly after Wynn Resorts (Nasdaq:WYNN) opened its first resort in Las Vegas, the aptly-named Wynn Las Vegas, in a filing it made with the Securities and Exchange Commission (SEC), the company reported that the average daily win rate at its table games was $7,117 per table. The slot machine win rate was $273 per machine per day. These win rates are indicative of the daily rakes at other casinos and means that each gaming device inside a casino is effectively its own money-making franchise.
Membership warehouse giant Costco (Nasdaq:COST) kicked off the first quarter of its fiscal year with healthy sales growth. Profit growth was muted due to higher costs of buying merchandise for sale to loyal members at its giant big-box stores. A consumer focus on penny pinching is likely to limit the sales downside at the underlying store base, but a rather lofty valuation on the stock suggests investors may not have the same protection.
So far in 2011, industrial, residential and commercial solutions provider Ingersoll-Rand (NYSE:IR) is among the worst performers of its industrial-based peer group. Despite the near-term weakness, the firm has done an incredible job of managing its business, since the credit crisis peaked several years ago. A major acquisition at the height of the debacle could have easily done it in, and while the outlook for its operations continues to be tepid, a reasonable valuation leaves room for some level of stock upside over the next few years.
So far this year, mid-market department store retailer Macy’s (NYSE:M) has reported stellar stock performance, compared to its peers and the market in general. A focus on the basics, including a localized merchandise strategy and store remodeling programs, are key reasons for its revival among customers and investors alike.
Pandora (NYSE:P) lets users stream music from anywhere they can secure an internet connection, be it a home computer or smartphone on the go. To date, it has successfully captured two thirds of the streaming market and is currently growing revenues at an impressive clip. However, with an enterprise value at roughly 10 times sales and any steady profit generation uncertain, well into the future, the only winners so far look to be early investors who received proceeds from the public offering, back in June.
Discount consumer goods retailer Dollar General (NYSE:DG) has posted solid and steady operating growth in recent quarters. Its third quarter was no exception and hasn’t gone unnoticed by investors. Because of the strong share price rally, there is little investment appeal for prospective shareholders, though a down economy could keep operating growth strong.
Tiffany & Co. (NYSE:TIF) reported third quarter results late last week that were downright impressive. The stock fell as the market was apparently looking for stronger trends, and may be worrying about Tiffany’s growth prospects over the longer haul. Given the firm’s track record and lofty valuation, investors have an argument for being a bit skeptical.
T-shirt and related activewear and underwear manufacturer Gildan Activewear (NYSE:GIL) surprised investors with a weak outlook when it reported full year results on Dec. 1, 2011. The stock dropped precipitously as a result as the market digests the volatility its underlying operations are experiencing. Based on management’s track record, the current woes could prove temporary.
Posted: December 1, 2011 1:40PM by Ryan C. Fuhrmann , CFA
The origins of the cliché that “everyone loves a villain” are not entirely clear, but it is clear that Hollywood loves portraying Wall Street’s internal betrayal as well as the duping of Main Street on the big screen. The latest vintage of films are dedicated to recounting the financial debacle that occurred between 2007 and 2009, but tales of greed, excess and betrayal have been common themes over the years. Below are four films that are especially entertaining in lending insight into Wall Street’s more extreme side.
Dolby Laboratories (NYSE:DLB) considers itself an integral part of what it refers to as “the entertainment experience,” which it has pioneered and developed in 45 years of existence. This includes the lucrative licensing of technologies that help improve the audio quality of movies, music, television and related media. The adoption of the DVD was a huge top line driver, especially when the company went public back in 2005. Other traditional channels have included licensing its technology to the broadcast markets, such as through television and related set-top boxes. Personal computer licensing also serves as another major contributor to sales.
Old-fashioned restaurant and retail operator Cracker Barrel Old (Nasdaq:CBRL) posted fiscal first quarter results on Nov. 21, 2011, that further demonstrated it is struggling to grow its underlying store base. This anemic performance has attracted the interest in an activist shareholder who has ambitions to improve company returns. Prospective shareholders may be better off watching the developments between management and the activist on the sidelines and investing in restaurant concepts with more appealing growth potential, over the long haul.
Medical device giant Medtronic (NYSE:MDT) posted second quarter results on Nov. 22, 2011 that highlighted the consistent and solid growth potential of a wide array of medical device products and services across the world. Those combined with a reasonable valuation and potential to boost annual profit growth back to the double digits make the stock worth a close look.
In similar fashion to the overall stock market, specialty apparel retailer Gap (NYSE:GPS) has had a rough decade. Its stock is less than half of where it was back in 2000 and sales have been roughly flat, for almost ten years now. Recent trends have been far from encouraging, though management has finally decided that shrinking its domestic store base is probably for the better.
Fast food operator Jack in the Box (Nasdaq:JACK) closed out its fiscal year on a high note, as trends at existing stores came in ahead of management’s expectations during the fourth quarter. Its investment appeal looks more dubious based on the current valuation and compared to a number of archrivals.
Technology giant Dell (Nasdaq:DELL) now bills itself as an “innovative technology and services” provider. This is a welcome change from its previous focus on laptop and desktop computers, which continues, especially in the consumer market, to cede market share to new applications. This shift is boosting profits handsomely, but the market may still be holding out for signs it can grow its top line.
Lawn and garden care firm Scotts Miracle-Gro (NYSE:SMG) recently ended its fiscal year on a sour note and struggled for most of the year, because of strange weather patterns throughout the U.S. Yet despite the unpredictability of Mother Nature and a historic housing bust, consumers are remaining loyal to keeping their lawns green and gardens tidy, which bodes well for Scotts going forward.
Off-price apparel and home fashions retailer TJX Companies (NYSE:TJX) reported third quarter results on Nov. 16, 2011, that were right in line with the trends it has posted over the past decade. Specifically, it has a fantastic track record at leveraging modest sales growth into double-digit profit gains. The stock recently hit an all-time high, but still has plenty of appeal going forward.
Caribou Coffee Company (Nasdaq:CBOU) bills itself as the second largest coffee house in the United States. A recent company presentation has highlighted that the vast majority of coffee is still prepared at home, but it has goals to capture an increasing share of both the at-home and away-from-home markets. Its recent quarterly financial release highlighted that each segment continues to grow robustly.
Home improvement retailing giant Lowe’s (NYSE:LOW) reported disappointing sales and profit trends when it released third quarter results on November 14, 2011. This is nothing new to shareholders, and it appears the company is finally coming to terms with the fact that it has entered a “new normal” of minimal industry growth. Its latest attempts to revive its own growth prospects include right-sizing its store count and finding ways to revitalize demand for its merchandise.
Posted: November 10, 2011 12:41PM by Ryan C. Fuhrmann , CFA
A common description of the stock market these days is that it is experiencing some of its highest volatility in history. A host of explanations are being offered, and include the advent of exchange-traded funds (ETFs) that are designed to return 300% of the daily stock market’s performance, whether up or down. An emphasis on shorter-term trading strategies are also blamed, be it momentum investing or day trading philosophies. Below is a brief overview of how the stock market has evolved in recent years, and some conclusions on whether it has truly become more volatile.
Beam (NYSE:BEAM) was formally created on Oct. 4, when Fortune Brands completed its eagerly anticipated breakup. Beam reported third quarter results on Oct. 27, 2011, that marked its first as a pure play liquor company. Despite a lofty earnings valuation, there are a number of ways for patient investors to see a solid return from the stock. (For additional reading, check out: What Is A Pure Play?)
Prudential Financial Inc (NYSE:PRU) reported third quarter results last week that had many moving parts, including a sizable acquisition earlier in the year, and a number of charges. Looking out over the next couple of years, added international exposure, and the potential for profit improvements as well as multiple expansion could allow for solid annual stock returns for shareholders.
In a nutshell, NewMarket (NYSE:NEU) sells additives that improve the performance of petroleum products. A primary end goal is to enhance the performance of machinery, equipment and just about anything that uses fuel or needs lubricants. The industry has gotten much more attention since Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) announced it was acquiring NewMarket rival Lubrizol, back in March. Interest from “the Oracle of Omaha,” and solid operating results have pushed NewMarket’s stock up lately, though earnings growth continues to be impressive.
Apparel firm HanesBrands (NYSE:HBI) reported third quarter results on Wednesday that saw continued solid sales growth, and another quarter of impressive profit expansion. Combined with a reasonable earnings multiple, the stock is worth a look, though the investment story does have one major potential drawback.
Earlier in October, the gambling industry held one of its main conferences of the year in Las Vegas, The Global Gaming Expo, or G2E. The event gives gaming professionals the opportunity to see the new products industry suppliers are selling, as well as talk with the companies and their management teams in person.
Posted: November 1, 2011 10:57AM by Ryan C. Fuhrmann , CFA
December will mark the three year anniversary of when it was first discovered that Bernard Madoff defrauded his clients for as much as $50 billion, in one of the largest financial Ponzi schemes in history. The money management industry sustained a significant black eye to its reputation as a result of Madoff’s fraud. Unfortunately, there are likely to be future thefts of client funds, though likely not on Madoff’s scale. As with any industry, certain players in the investment field will resort to cheating, in an attempt to get ahead. Below are five issues to consider in order to identify, and best avoid, investment fraud.
Like others in its industry, leading defense firm Raytheon (NYSE:RTN) is struggling to grow. Its third quarter financial release last Thursday confirmed its top-line challenges. The wind down of major combat operations across the globe and a cost-cutting mindset in Washington could persist to make sales growth difficult for some time. However, defense spending is not going away; in fact, it should continue to grow internationally, and the larger players are proving adept at cutting costs to keep profits moving forward. Combined with low valuations and high dividend yields, the industry, including Raytheon, are worth a look for patient investors. (For additional reading, check out: Dividend Yield For The Downturn.)
Casino giant Las Vegas Sands (NYSE:LVS) had a near-death experience during the credit crisis and saw its stock fall to less than $2 per share in early 2009. Investors that anted up at that time have seen the stock jump back close to $50 per share, which is still well below highs closer to $140 per share back in 2007. The volatility demonstrates the feast-or-famine market dynamics in the industry, but right now the company and a number of rivals are feasting on overseas growth in Asia, which could continue to boost their prospects considerably. (For more stocks similar to the Las Vegas Sands, check out Top 5 Stocks Back From The Dead.)
Medical device firm Zimmer Holdings (NYSE:ZMH) posted respectable third quarter sales growth, but needed to rely on share buybacks to boost its bottom line. Growth has been a challenge at the firm for some time, although profits remain robust and the earnings valuation remains compelling. (To know more about buybacks, read: 6 Bad Stock Buyback Scenarios. )
Back in January, industrial conglomerate ITT Corp. (NYSE:ITT) announced plans to break itself into three separate, publicly-traded companies. The move, which was billed as helping the units “emerge as three strong and focused standalone companies,” is finally set to take place on Halloween. On Friday, the company reported its last quarter as a combined entity and lent further insight into what each unit will look like when they start to trade independently on Monday.
Consumer goods giant, Kimberly-Clark (NYSE:KMB), reported solid sales growth and earnings that met analyst projections on Oct. 24, 2011. Results continue to be adversely impacted by rising raw material costs, but are still as consistent as investors are likely to find, in the market today. Throw in an above-average dividend yield and the stock may appeal to conservative, income-minded investors.
Tupperware (NYSE:TUP), known best for its Tupperware parties, or social neighborhood gatherings, where a host sells its kitchen storage products, and other related products, possesses a business model that is well suited for emerging markets. Its third quarter results offered the most recent illustration that growth potential is wide open across the world, as is considerable and consistent profit expansion.
Autoliv (NYSE:ALV) bills itself as the global leader in automotive safety suppliers and estimates that its products save 25,000 lives annually. Despite the social benefits of its business model and steady growth trends, as demonstrated by double-digit sales growth during its third quarter, fears of a global economic slowdown sent its share price down by more than 30%.
Posted: October 11, 2011 10:34AM by Ryan C. Fuhrmann , CFA
A recent study by consulting firm McKinsey, highlighted that most major downturns in the economy have been caused by “some sort of credit crisis.” For financial firms, the resulting economic recession can lead to ruin. Firms with heavy debt loads or that were caught expanding too aggressively before a downturn, can also be ruined. Yet other firms simply succumb to intense industry competition, as occurs frequently in the technology industry. (To help your portfolio make a comeback from the dead, read Bouncing Back From A Portfolio Hit.)
It’s no secret that emerging markets [1] hold vast potential. Take the rise of the emerging-market consumer, for example. A report from earlier this year detailed that annual income rates in China quadrupled to $1,910 in the past decade and nearly doubled to $5,739 in Latin America. These rapid rates of growth should only continue in the coming 10 years and beyond.
Diversified healthcare giant Abbott (NYSE:ABT) announced third quarter results on Wednesday and reported solid sales growth. Profit levels were also decent on an adjusted basis, but the release was overshadowed by its announcement to break into two publicly-traded firms. The move looks unwise given Abbott has led the industry in terms of shareholder returns, but there could be motivations that end up making sense for future investors.
Honeywell International (NYSE:HON) bills itself as a leading technology and manufacturing firm and is, for all practical purposes, an industrial conglomerate. Judging by its third quarter results, many segments of the global economy it serves, remain on solid footing. Management detailed it expects solid economic growth for the remainder of 2011 and into next year, which should put prospective investors at ease; so should the reasonable cash flow multiple.
Diversified healthcare bellwether Johnson & Johnson (NYSE:JNJ) reported decent third quarter sales trends on October 18, though profits fell. Despite continued tepid near-term results, J&J stands out for its product and sales diversification. And though upside potential remains questionable, the stock has protected investors on the downside. Year-to-date, it is up 5% while the overall market is down about 5%.
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