Investors are always on the lookout for a competitive edge. The ability to peer slightly into the future is a key edge to exploit, be it company guidance for the next quarter or analyst projections over the next couple of years. But one company has gone a step further than most and has provided an earnings  road map out to 2015 — where it projects an astounding $20 per share in earnings.
The first thing to note is the company sailed through the credit crisis. A look at its financial results proves it had minimal ill-effects from a housing bubble and credit crunch that sent a number of erstwhile well-respected firms down in flames. Its customer base was also hit, but it remained loyal.
Limited Brands (NYSE: LTD) witnessed a nice sales recovery at its flagship Victoria’s Secret stores during its second quarter. The near-term boost was welcome news to investors, as was the overall jump in profits. Longer-term, management is targeting international expansion, which is more uncertain but still has the potential to sustain the near-term positive momentum.
Retirees and others that rely on income from their investments will be the first to tell you that interest rates are not what they used to be. Prior to the credit crisis, an individual with $2 million saved up could achieve a six-figure income just by holding a diversified basked of fixed income securities.
These days, locking your money up for 30 years with Uncle Sam will net you a yield  of less than 4%. Ten-year Treasuries yield a stingy 2.6% these days, while money market funds essentially yield nothing. Add in the effects of inflation , and real rates are also next to nil.
The energy industry has been especially turbulent recently, and investors looking for opportunity in companies afflicted by the offshore rig explosion and subsequent oil spill in the Gulf of Mexico are positioned right in the middle of the hurricane.
I’ve spent some time in the hurricane and have concluded that the share prices of BP plc (NYSE: BP ) and Transocean (NYSE: RIG ) have fallen to levels that more than discount the downside risk to their operations. [Read: Forget BP: Buy This Instead ]
Medical device giant Medtronic (NYSE:MDT) sent the medical device industry on edge after reporting weaker-than-expected sales during its first quarter. Shares of Stryker (NYSE:SYK) fell in sympathy, and though it also sells products related to spinal surgeries, its orthopedic device unit should continue to hold up well despite murkier industry conditions.
Fast-food operator Burger King (NYSE:BKC) has its sights firmly set on international growth opportunities. Given the reasonable valuation, there is downside protection in the share price and relative valuation appeal compared to a couple of key rivals.
During downturns in the business cycle, companies focus on cutting costs as it becomes more difficult to grow sales. Existing customers generally spend less and it is very challenging to find new customers when everyone is battening down the hatches.
The severity of the current downturn could mean that sales growth could easily remain depressed for much longer than expected. So far, large corporations are performing admirably by cutting the fat wherever they can. Eventually, though, many will have cut costs to the bone and will need revenue increases to sustain profit improvements.
Staples (Nasdaq:SPLS) didn’t end up selling more office supplies during its second quarter through its retail, catalog, and online sales channels. Profits did jump on a lack of one-time charges, though forward guidance was tempered and sent the stock on a downward path. The company remains a superior pick compared to its archrivals, but is less appealing in the overall retail space right now.
Wal-Mart’s (NYSE:WMT) second quarter was business as usual for the world’s largest retailer. Sales were a bit light in the U.S. but international grew impressively and overall cost cutting helped profits came in as expected. Some day the firm will get the credit it deserves for its consistency and cash flow generation, but for now its shares trade with little regard for its retail dominance.
Posted: Aug 20, 2010 10:25 AM by Ryan C. Fuhrmann
Conservative investors interested in retailing exposure and worried about a double-dip recession would be well served to consider TJX Companies (NYSE:TJX). In stark contrast to many rivals, its results have been bolstered by an economic downturn. This trend could easily reverse course if consumers become less price conscious, but TJX remains worthy of consideration despite the macroeconomic climate.
Specialty retailer Urban Outfitters (Nasdaq:URBN) was adversely affected by the domestic economic downturn over the past couple of years. But instead of a sales and profit decline, growth only decelerated. Recent trends indicate that growth is again accelerating and, although its shares trade at a premium to the market and many peers, Urban may still be worth it as an investment.
Upscale department store retailer Nordstrom (NYSE: JWN) reported impressive sales and stellar profit growth during its second quarter. However, the market was apparently disappointed by the fact it kept full-year profit guidance the same. (To learn more, see Can Earnings Guidance Accurately Predict The Future?) The shares fell significantly as a result – representing a buying opportunity as the firm’s long-term prospects remain bright.
Packaged food and beverage provider Sara Lee (NYSE:SLE) reported full year results on Thursday that illustrated it is in a constant state of flux. SLE continues to sell off businesses and redeploy the capital to shareholders in a number of ways. Its remaining businesses may not be that great, but investors could still profit handsomely.
A recent survey by Interbrand, a leading brand consulting firm, awarded top brand honors to Coca-Cola Co. (NYSE: KO ). Should this come as any surprise? Perhaps not. But what is surprising is that a new related product appears to be breathing new life into the firm’s more mature markets, while the company continues to expand at an impressive clip in faster-growing emerging markets.
Just recently, Coca-Cola’s home market was seen as a liability that was dragging down more compelling growth prospects overseas, especially in the high-growth BRIC (Brazil, Russia, India, China) countries and those quickly developing a new class of mass consumers. But then, almost completely out of nowhere, Coke Zero came along. The zero-calorie take on the company’s flagship beverage pushed volume growth up a couple of percent in North America — a notable reversal of an extended period of flat volume trends.
Posted: Aug 12, 2010 10:20 AM by Ryan C. Fuhrmann
Walt Disney Co. (NYSE:DIS) reported third-quarter results on Tuesday that served as another indication that advertising trends are improving along with the overall economy. Its other operating units are just as economically sensitive, which means investors stand to gain handsomely as Disney’s sales and profit rise along with an increasingly favorable consumer climate.
Department store giant reported better-than-expected profits during its second quarter and raised its full-year earnings guidance. This was welcome news to investors, though at this point it isn’t clear if this strong performance will continue or if Macy’s stands out from the competition.
If I were to reverse engineer the ideal company to invest in, it would be one that is a leader in its industry, operates in a fast-growing market, has a globally diversified revenue stream that emphasizes emerging economies, has a strong balance sheet  with no debt, boasts high profit margins and double-digit returns on invested capital.
Sounds like an investor’s dream, doesn’t it? But wait, it gets better…
Read the rest of this entry »
Entertainment content giant Viacom (NYSE:VIA) is finally seeing a boost from a stronger advertising market. This improvement should continue along with the overall economy. Overall, its businesses are volatile due to the economy and fickle consumer tastes, but may be worth it given its high profit potential during upswings in its operations.
Life insurance giant Prudential Financial (NYSE:PRU) reported a hefty jump in profits during its second quarter. Insurance and annuity sales also continued to recover nicely after a difficult stretch over the past couple of years. The stock is still stuck slightly below book value and could be a good entry point for investors.
The oil spill disaster in the Gulf of Mexico will alter the landscape for offshore drilling for decades to come. Uncertainty over new regulations, lawsuits and the near-term hit to business in the region have sent the share prices of many major players in the industry to multi-year lows.
But at current valuations, shares of these major players are pricing in extremely negative outcomes and don’t take into consideration that Gulf drilling is a small and declining percentage of global activity. As a result, I’ve found one major industry player that qualifies as “The Bargain Stock of the Year.”
The unemployment rate  in the United States has only recently experienced some moderately good news, dipping back into the single digits to 9.5% — a slight downtick  from 9.7% in May. A 9.5% unemployment rate is still a far cry from 2007 the when the jobless rate was only 4.6%, and as David Sterman noted this morning , we need to see about 200,000 new jobs created every month to significantly bring that number down significantly.
Fortunately, the United States has yet to not recover from a recession, which means that hiring trends should eventually pick up. This is great news for payroll firms.
Consumer goods firm Clorox (NYSE:CLX) reported fourth quarter and full-year results on Tuesday that were notable for their lack of surprises. A Venezuelan currency devaluation adversely affected the firm and archrivals, but other than that Clorox saw steady sales growth and robust overseas trends. The fact that it is smaller than many peers also indicates growth will be less of an uphill battle going forward.
Financial products distributor Primerica (NYSE:PRI) went public on April 1, 2010 at a price of $15 per share. The stock ran quickly after the offering but has recently settled down at just over $23 per share. The current valuation looks reasonable overall, but Primerica’s fortunes remain closely tied to its former parent
The credit crisis wreaked havoc on the market values of the investment portfolios of most life insurers. With financial markets and liquidity returning back to normal, the values of bonds, real estate, and equities on the balance sheet are returning to normalized levels. This was the case for MetLife (NYSE:MET) during its second quarter. Its core operations continued to perform well and an upcoming purchase will add very appealing international exposure. (To learn more about the credit crisis, see Credit Crisis: Introduction).
Equifax (NYSE: EFX), TransUnion and Experian operate an arguable oligopoly when it comes to maintaining and selling consumer credit information. Fair Isaac (NYSE: FICO) also provides FICO scores for consumers that compile data from the three above providers and qualifies as another competitor, but overall the market is concentrated. Unfortunately for Equifax, its core business isn’t growing much and has left it relying on less impressive businesses for growth.