The time is ripe to get into leading growth stocks. Today brings both a strong new buy from Dow Theory Forecasts, followed by a downgrade of a weaker candidate.
“With a Quadrix Overall score of 95, Foot Locker, Inc. (FL, $37) ranks near the top 5% of our research universe and number two among the 43 apparel retailers. A strong shoe and clothing product cycle bodes well for growth. In addition, cost controls and improved inventory management have reduced markdowns and boosted profit margins in recent quarters. Over the last 12 months, Foot Locker grew per-share profits 40% on 9% higher revenue. A 40% rise in free cash flow over the same period suggests earnings quality is high.
“In the July quarter, revenue rose 7% on impressive same-store-sales growth of 10%. Per-share earnings surged 58%, beating the consensus for the 10th consecutive quarter. For the fiscal year ending January 2013, consensus estimates project per-share profits of $2.45, implying 35% growth. The consensus was $2.38 a month ago. Despite that growth, the shares trade at less than 17 times trailing earnings — a 13% discount to apparel retailers in the S&P 1500 Index and 32% below the stock’s five-year average P/E of nearly 25. Foot Locker, already rated a Buy and a Long-Term Buy, is being added to the Focus List.”
- Richard J. Moroney, Dow Theory Forecasts, September 13, 2012