Detective Finds Clues to 2 Turnarounds

10/17/2018 5:00 am EST


Harry Domash

Publisher, DividendDetective and Winning Investing

Harry Domash in a leading income expert; in his Dividend Detective newsletter, he maintains a variety of income-based portfolios. Here's a look at his two latest buy recommendations — both turnaround ideas.

First, we’re recommending Hasbro (HAS), a leading producer of toys, games, etc., to the portfolio. The company's products include Monopoly, Nerf, GI Joe, Play-Doh, etc.

Spurred by continuous new product introductions, both sales and earnings were growing at double-digit rates until September 2017, when Toys “R” Us, a major customer, filed for bankruptcy.

The continuing liquidation of Toys “R” Us inventories, and to a lesser extent, a retail slowdown in Europe, sunk this year’s numbers. Currently, the Toys “R” Us liquidation is nearing an end, but Europe is still having problems.

Nevertheless, analysts are forecasting a return to sales and earnings growth for Hasbro in 2019. \\Hasbro is a turnaround play. Although the stock is only paying 2.4%, it has been hiking its payouts around 11% annually. 

Steelcase (SCS) —  paying a yield of 2.9% — is a company that once dominated its industry, but failed to notice major changes affecting the way customers used its products. Consequently, sales stayed flat for more than 10 years. That’s all changing now.

Founded in 1912, with offices and factories in the Americas, Europe, Asia, the Middle East, Australia and Africa, Steelcase is the world’s largest office furniture manufacturer. Its Steelcase Health unit produces furniture and interiors for waiting rooms, medical offices, and clinics.

However, with the advent of new technologies, workspace requirements changed, but Steelcase’s products didn’t. Consequently, Steelcase has been in the doldrums, recording more or less flat sales for at least the last 10 years.

That all changed a year or so ago when Steelcase embarked on a program to make its products relevant to today’s market. Changes include acquiring firms with products attuned to current needs, and partnering with the likes of Microsoft to create innovative workspaces.

Those efforts have just begun to pay off. Steelcase recently reported August quarter earnings soared 32% vs. year-ago, powered by 13% sales growth.

For the year-ending March 2019, analysts forecast 23% EPS growth on 11% higher sales, and those estimates could be conservative. Steelcase is paying a 2.9% yield and has been hiking its payout around 6% annually.

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