I recently came across an insightful article that boldly detailed how the Internet is changing the world. The piece offered a number of stats and detailed that 750 tweets are written from Twitter every second, 2.5 billion photos are uploaded to Facebook every month, and overall Internet traffic is growing +40% a year — which is impressive, given that traffic has grown like gangbusters for more than a decade now.
With this growth comes an ever-increasing need to store, retrieve and protect the data being posted on the Internet. Start-up firms are well aware of this fact, as are the larger technology firms that have survived the dot-com bubble and have grown into industry bellwethers. The titans of industry are focused on research & development to come up with their own products to address these needs, but they are also flush with cash, which means they can gobble up smaller players to bolster organic growth.
Back in 2007, DineEquity (NYSE:DIN) took on more than $2 billion in debt to acquire the Applebee’s restaurant chain. Its strategy has been to sell most of the stores to franchisees but the plan has been slowed down by a recession, leaving the firm with an extremely uncertain outlook.
Paychex (Nasdaq:PAYX) just closed the books on the first quarter of its fiscal year. Its flagship payroll services business is hanging in there until the economy or interest rate rises. Its human resource outsourcing business is seeing impressive trends during a difficult economy. Looking forward, the stock has investment appeal, despite more subdued top-line prospects.
The demise of an archrival and improving trends for shoppers may be the ideal recipe for Bed Bath & Beyond (Nasdaq:BBBY) shareholders to start seeing sustainable gains on their investment. It’s been quite a dry spell on the stock appreciation front over the past few years, but improvements at the company’s underlying operations could pave the way for steady profits going forward.
Legend has it that the term “blue chip” stems from poker, in that it represented the poker chip with the highest value in the game. These days, the term is ubiquitous in the stock market and refers to a large, stable company that is financially sound, has well-known brand and market awareness and a diversified sales base.
Blue chips are also frequently known as industry bellwethers. A perusal of the 30 companies that make up the Dow Jones Industrial Average is perhaps the best illustration of blue chips across a wide array of industries. Prime examples include Coca Cola (NYSE: KO [1]), American Express (NYSE: AXP [2]) and Intel (Nasdaq: INTC [3]), as they dominate their respective industries and their corporate logo qualifies as a global brand with billions of dollars in brand equity.
Posted: Sep 28, 2010 09:28 AM by Ryan C. Fuhrmann
The casual dining industry is extremely crowded, with newer firms including Texas Roadhouse (Nasdaq:TXRH) and Red Robin Gourmet Burgers (Nasdaq:RRGB) rapidly expanding their store bases. Brinker (NYSE:EAT) and DineEquity (NYSE:DIN) run a number of more mature store brands across the country. So does Darden Restaurants (NYSE:DRI), which has proven it can keep its concepts fresh, compete against archrivals and recently demonstrated it can survive adverse economic conditions as well. This bodes well for investors going forward. (For some background on these types of stocks, check out Sinking Your Teeth Into Restaurant Stocks.)
Software provider Adobe Systems (Nasdaq:ADBE) reported third quarter earnings and a forward outlook that disappointed investors. The stock fell dramatically as a result and has pushed the valuation into very reasonable territory.
A common pitfall companies encounter has to do with challenging marketplace conditions, be it changing customer habits or competition from rivals that attempt to steal away its business. Others have a habit of self inflicting their wounds.
Changing market conditions, foreign competition, fickle consumers — these are conditions most investors can live with as an excuse for poor performance — to an extent. But when a dominant company continually stumbles over itself because of something as simple and within the realm of control as, say, hiring and firing decisions, its enough to make investors head for the exit.
But in the case of Hewlett-Packard (NYSE: HPQ [1]), the crowd has it all wrong. Sure, the soap-opera events surrounding the dismissal of Mark Hurd, HP’s former Chief Operating Officer, were embarrassing for the company, but new investors now have a chance to pick up a world-class name for a cheap price.
Carnival (NYSE:CCL) (NYSE:CUK) rules the seas as the largest cruise company and one of the largest vacation companies in the world. It has done an enviable job of holding sales steady during the global recession, and appears to be seeing a robust recovery in current booking trends, which it detailed during its third-quarter financial release on Tuesday. It remains to be seen if profit growth, which has been nonexistent for some time, will return.
Financial software and system provider FactSet (NYSE:FDS) reported fourth-quarter results on Tuesday that demonstrated that it survived the credit crisis with flying colors. However, at the current valuation, investors expect growth to quickly return to more rapid historical levels and could end up disappointed.
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Large pharmaceutical companies have been ignored by investors for some time now. After decades of gangbuster growth and blockbuster drugs to treat depression, high blood pressure and many other common ailments, many are facing competition from generic drugs as the patents protecting the exclusive right to sell these blockbuster drugs expire.
The primary concern for investors in the industry is that these firms will not recover from the resulting loss in revenue. The respective firms are working to address the “patent cliff” in a number of ways, including mergers, divestitures, cost cutting efforts and developing new drugs to offset lost sales.
To the market, it is a foregone conclusion that Apple (Nasdaq:AAPL) has all but won the smart phone war with its technically-savvy and popular iPhone. There is no denying that Apple has a first-move advantage and has made a stunning foray into the mobile phone market, but advantages in the technology industry usually don’t last long. Just ask Research in Motion (Nasdaq:RIMM) and its Blackberry wireless franchise, which investors have effectively left for dead. (Learn more about evaluating companies for yourself; read 5 Must-Have Metrics For Value Investors.)
An important trend that will drive stock market returns in the coming decades is demographics. Simply put, the age of citizens across the world is advancing. In the United States, the first of the Baby Boom generation was born in 1946 and is in the process of retiring. Japan, Europe and many other countries also stand out for their aging workforces. [Read: 7 Countries that Could Crash in Five Years [1]]
What better way for investors to play this trend than with firms that help aging people stay mobile and active? Thanks to more active lifestyles and, especially in the United States, a significant increase in obesity rates, joints begin to ache and the body literally begins to wear down after years of use. Aging individuals will need expert care to help them live longer, healthier lives.
Grocery store giant Kroger (NYSE:KR) completed another quarter of respectable growth. The top-line improvement reached the mid single digits while profit growth was slightly below this level. Cash flow production improved though, and could be a precursor to the freeing up of more capital for the benefit of company shareholders. (To learn more, check out Evaluating Grocery Store Stocks.)
Electronic retailing giant Best Buy (NYSE:BBY) reported second-quarter results on Tuesday that handily beat analyst projections. Robust profit trends also allowed it to increase guidance, which investors also liked. The shares rallied strongly after the release, but are still very reasonably valued.
I attended an investment conference last week and listened to a number of business updates from leading financial institutions. The vast majority are staying extremely conservative with their lending activities and are waiting for more tangible signs of an economic recovery before they start shifting gears from surviving the credit crisis to growing their operations.
This sentiment is similar across the United States and throughout the world, with the vast majority of big banks taking a wait-and-see approach in regard to the future economic climate. With so many in the industry playing defense, it takes a brave firm to go on the offensive and stand against the crowd.
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Cracker Barrel Old Country Stores (Nasdaq:CBRL) just closed the books on a successful year that saw sales stabilize and profits jump significantly. Its store base is no longer growing rapidly, but it can be counted on for an appealing combination of a loyal customer base and excess capital to return to shareholders.
At the end of this year, a series of tax cuts implemented by George W. Bush and his administration between 2001 and 2003 are set to expire. In what now seems like an entirely different era, the cuts were approved at a time when the U.S. government budget was in a surplus and the motivation was to return some of this excess to taxpayers and jump start a tepid economy [1].
Also at that time, a lack of a clear majority to approve the cuts was a concern. As a result, a special provision was used to ensure the passage of the cuts. Unfortunately, a condition of using this unique provision (and the same one that was used to push dramatic healthcare reforms through earlier this year) was that the federal budget could only be altered for the next 10 years.
Central European Distribution Corp. (Nasdaq:CEDC) bills itself as the largest vodka producer in the world. It’s not surprising then that its emphasis is on the Russian vodka market, which makes up 95% of the demand for alcohol in the country. It is also the largest player in the Polish markets. There is still work to do to fully capitalize on these leadership positions, though cash flow generation is looking strong.
The share price of drug distribution firm McKesson Corp (NYSE:MCK) has completely missed the recent stock market rally. Yet its operating fundamentals remain strong and health care reform efforts should breathe further life into its growth prospects.
Hanesbrands (NYSE:HB) sells basic apparel products and boasts leading market shares in basic categories including underwear, socks and t-shirts. Its merchandise didn’t prove very recession-resistant during the current downturn in the economy, but demand trends are improving and a number of company-specific improvements should combine to create considerable upside for shareholders.
With economic growth potentially stagnating, large firms are resorting to buying market share [1] by acquiring rivals or know-how that will help them grow fast and stay one step ahead of the competition. M&A activity in the cash-rich technology industry has grown especially rampant as of late. For example, two giant tech firms, Dell (Nasdaq: DELL [2]) and HP (NYSE: HPQ [3]) feverishly competed to acquire data storage server firm 3PAR (NYSE: PAR [4]).
3PAR has jumped more than three times since the original bid was placed in mid-August and illustrates that the data storage server market is highly appealing. [See: This Company's 10-Day, +169% Run is Heating up an Entire Sector [5]] Firms and individuals have growing needs for storing and retrieving the massive amounts of electronic data being created these days, be it email, online customer tracking and management, or file backup, just to name a few.
Posted: Sep 10, 2010 09:08 AM by Ryan C. Fuhrmann
Cherokee (Nasdaq:CHKE) is a small cap company that markets and licenses apparel and related products to retailers. But it’s not just any old apparel maker – its unique business model is very lucrative because it leaves the manufacturing and distribution to the retailer; most other apparel makers either do their own manufacturing, or depend on outside firms. It’s too bad that sales and profits are shrinking right now, but this shouldn’t necessarily turn investors off the stock. The company pays a high dividend yield; if it can get this to a sustainable level, it could be worth a further look. (To learn more, see Dividend Yield For The Downturn)
The retailing industry is littered with investment bargains right now. Many leading firms with appealing growth prospects and impressive cash flow generation are trading at earnings and cash flow multiples in the high single to low double digits. One such stock is Carter’s (NYSE:CRI), the market leader in children’s apparel.
Back in the early 80′s, Macy’s (NYSE:M) created the Aeropostale (NYSE:ARO) private-label brand to sell to men in their early 20s in its stores. An initial public offering in 2002, and rapid growth since, have made shareholders quite a bit of money. A low valuation and still-solid expansion prospects could mean more of the same going forward.
The last 10 years are widely referred to as a lost decade for equities given stock market returns have been flat over the period. This is also true of retailer Gap’s (NYSE:GPS) stock, as well as its operations. More recently, growth trends are showing signs of life and the firm continues to generate impressive amounts of cash flow.
Shares of Campbell’s (NYSE:CPB) took a slight tumble after the earnings release as many investors expected stronger sales and others were concerned about its outlook. Still others are worried about more challenging soup sale trends in the nearer term. Prospective investors should be more interested in the firm’s outlook over the long haul, which isn’t all that compelling.
Rapid hardware and software innovation are working to shift the world from a PC-centric focus to servers, smart phones and a stunning number of related technology devices. However, the demise of the computer is greatly exaggerated, and though growth isn’t as robust at it used to be, recent trends are very encouraging.
Global economic woes have masked a long-awaited PC and data center replacement cycle from businesses. Employees need computers to do their jobs and employers need technology to keep productivity [1] moving forward. One industry leader is taking advantage of this refresh cycle and using its flagship computer segment as a cash cow to evolve along with the industry.
Overall stock market weakness and an analyst downgrade have sent shares of diversified apparel maker VF Corp. (NYSE: VFC) toward their lows over the past year. An undervalued share price hurts the ability to use equity for acquisitions, but strong cash flow generation leaves plenty of dry powder to buy market share and supplement very respectable organic growth.
Despite reporting weaker-than-expected sales during its second quarter, upscale jewelry retailer Tiffany & Co. (NYSE: TIF) is seeing a nice recovery in its top line. This, coupled with global expansion ambitions and new product launches, should keep growth chugging along, though the current stock is a bit pricey.
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