Fall has always been my favorite season. I love the crisp, cool fall days that we get in the Northeast, especially when it’s sunny. I also love the sweaters, boots and scarves that are justified by the chill in the air. Fall always makes me want to go shopping. And
I’m not the only one.
According to the seasonality experts at Stock Trader’s Almanac, late September (right about now) is historically the beginning of a seasonal period of consumer strength. As Almanac Analyst Christopher Mistal wrote last month:
“Earlier this month in the ETF Corner, historical consumer strength running from approximately the end of September to the beginning of June in the following year was the basis for two new ETF trade ideas. Based upon the Morgan Stanley Consumer Index, the sector has produced gains averaging 10.8% over the last 15 years during this timeframe. [Now] the time is right to consider adding individual consumer-orientated stocks to the Stock Portfolios.”
His stock picks included shoe retailer DSW Inc. (DSW), which I featured in our August 23 Investment Digest Daily Alert. A few days later the stock gapped up on great earnings, including a 47% increase in EPS and revenue numbers that beat analyst estimates. The stock has spent the three weeks since earnings consolidating the jump, and could still be a good buy here for investors who want exposure to seasonal consumer strength. Here’s the original Almanac recommendation:
“DSW Inc. (DSW) recently hit a new 52-week when it raised guidance and announced that it was planning to split its shares two-for-one. DSW is a footwear and accessory retailer in the U.S. with a broad and diverse product lineup selling online and at traditional brick and mortar stores. DSW is reasonably valued with a trailing P/E in the low 20s and has an attractive Price/Sales ratio of 1.55. Revenues are rising, it has no debt and plenty of cash. DSW could be purchased on pullbacks below $78.75 (current pre-split price). - Jeffrey A. Hirsch, Stock Trader’s Almanac, August 20, 2013
DSW was joined in last week’s Investment Digest by another shoe company, Weyco Group (WEYS). WEYS’ chart is more ambiguious than DSW’s—the stock started to take off during the July rally but lost most of its gains in August—but it was recommended by Forbes Dividend Investor Editor John Dobosz for its sales growth and good valuations. Here’s his recommendation, via the latest Investment Digest issue:
“This recommendation is about a shoe company that’s hitting its stride and kicking out a steady flow of dividends that regularly rise. Milwaukee-based Weyco Group (WEYS) is the business behind Florsheim and Nunn Bush shoes, which it designs and markets throughout North America. It sells mostly to retailers through its wholesale business, but it also runs 23 company-owned stores and sells on the Internet. Additional brands owned by Weyco include Stacy Adams, BOGS, Rafters and Umi.
“Over the past 12 months, Weyco earned $18.3 million on $296.5 million in sales. There are no Wall Street analysts with forecasts for Weyco, but sales have been running higher from $229.2 million in 2010, $271 million in 2011 and $293 million in 2012. Operating cash flow of $27.3 million exceeded earnings by 50%. Free cash flow, after paying dividends, was postitive by $11.4 million.
“Valuations compared to five-year averages sport discounts across the board. Weyco trades at a 24% discount to its average price-sales ratio since 2008, and 20% cheaper on its price-earnings multiple. On book value, it’s trading 12% more cheaply than it has in the past five years. If it fetched its average P/E of 18.6 since 2008, the stock would be trading at $31.43, based on $1.69 in trailing earnings.” - John Dobosz, Forbes Dividend Investor, September 16, 2013
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Lastly, also from the latest Investment Digest, one consumer stock that isn’t about footwear. The stock is LeapFrog Enterprises (LF), which sells educational technology toys for kids, and was recommended by father of four Frank Curzio in FXC Newsletter. He wrote:
“Two words here: Kids and Santa. I am the father of four grade school children and I am the first to admit that they get whatever they want. LeapFrog Enterprises designs, develops, and markets technology-based learning products and related proprietary content for children worldwide. Leapfrog develops reading and writing applications for learning designed to be used with the iPad and iPhone. Their products are innovative and great fun for kids. They offer the LeapPad, the LeapPad2, the Leapster, LeapReader and many other handheld devices.
“The days of Barbie Dolls and Lego are behind us. Kids are using computers in classrooms at four years old and teachers are using virtual learning boards instead of blackboards. Leapfrog has surpassed Hasbro and Mattel in sales and their products are a top seller in Toys R Us and on Amazon. ... The future is technology. If you can’t beat it, join it, and we feel Leapfrog will reap the rewards this holiday season. Parents spend uncontrollably on their kids and they will be running full speed to buy these products. With the upcoming holidays, buy yourself this gift as we see this stock going as high as $20 next year. BUY.” - Frank Curzio, FXC Newsletter, September 2013
Wishing you success in your investing and beyond,
Chloe Lutts Jensen
Editor of Investment of the Week
