Stack's Trio: Bucking the Trend
01/31/2003 12:00 am EST
Jim Stack, editor of InvesTech market Analyst , has correctly kept his followers out of stocks since the 2000 market peak. Since then, he has only held limited investment positions that he feels could buck the downward trend. Although he still remains cautious on the market, he has added small positions in three new stocks to his model portfolio.
"In addition to traditional value criteria, we focused on selecting companies with the ability to maintain positive revenue and earnings growth in this difficult economy. We also look for reasonable valuations, with p/e and price-to-sales at or below the firm's ten-year median or the industry average. We also looked for limited debt liability and high credit ratings and solid profitability with strong cash flow and return on equity of 15% or more.
"Applebee's International (APPB NASDAQ) is one of the largest casual dining chains in the US. Its p/e of 18 is less than the ten-year median of 20. 12-month revenues are up 8% and earnings growth is up 9%. Financial strength is rated B++ by Value Line and long-term debt is only 9% of capital. The company is growing rapidly with an average 100 new restaurants opening annually. The firm also introduced a new 'To Go' curbside service program.
"AFLAC (AFL NYSE) is the world's largest underwriter of supplemental cancer insurance. Its p/e ratio is 21 vs. an industry average of 22. 12-month revenues are up 3% and earnings are up 14%. The company has a Standard & Poor's credit rating of A. AFLAC is a major insurance provider in Japan with 76% of revenues and profits coming from that health conscious market. Currently, US operations are growing rapidly, contributing to Q3 revenue and earnings increases of 11% and 18%, respectively.
"TJX Companies (TJX NYSE) is the world's largest bargain-priced apparel and home fashions retailer. Its p/e of 18 is less than the industry average of 31. 12-month revenues are up 14%, with earnings growth of 15%. Financial strength is rated A+ by Value Line and A by S&P. TJX maintains a 43% return on equity, which is far above the industry average of 19%. In addition, a diverse product line with stores in the US, Canada, and Europe offers expansion opportunities."
With annual revenues of $4.5 billion, Minnesota-based Polaris Industries (PII) makes off road vehicl...