5 Stocks for Your Holiday Shopping List
11/25/2011 8:30 am EST
The holiday shopping season is already well underway, evidenced by Christmas decorations at the mall and stories in the media reporting that some shoppers had finished buying everything on their lists in October, notes Elyse Andrews of Cabot Wealth Advisory.
With Thanksgiving and then Christmas right around the corner (plus that other "holiday," Black Friday), some retail-related stocks are poised to benefit from the holiday shopping season.
This week and next, I’m going to share some of the stocks that I think could get the most boost from this annual consumer binge. Today’s stocks all fall into the growth category and have been recommended by Cabot Top Ten Trader.
Deckers Outdoor (DECK)
Shoppers looking for cozy boots and slippers this winter can stop their search at this retailer of the UGG brand. The sheepskin footwear produced 79% of Deckers’ 2010 revenue, making a key component of the company’s business.
In addition to the UGG cash cow, Deckers is behind Teva sandals, Simple sustainable shoes and Tsubo fashionable footwear. The majority (three-quarters) of Deckers’ revenue still comes from the US, but the company is branching out into international markets.
With a long history of success in managing its various brands, Deckers should have a profitable run ahead. Additionally, institutional support is very high right now—a bullish sign.
The next two stocks are ones we’ve discussed a few times in Cabot Wealth Advisory, but the underlying theme behind their success remains a powerful one. As the economy struggles and consumers look to save money, discount retailers are having their moment in the sun.
Dollar General (DG)
This discount retailer has found success in its strategy of putting relatively small stores (about 7,200 square feet) in convenient locations, making them easily accessible to all who want to shop there.
Dollar General stocks brand-name merchandise that it sells at a big discount in its 9,500 stores in 35 states across the South, Southwest, Midwest, and Eastern US. The company works to keep overhead down by focusing on a limited assortment of products and quick turnover of its stock.
Dollar General is now working to expand its stores while lowering its debt. Institutional support is growing, and Warren Buffett recently became an investor, indicating he thinks the theme behind DG’s success will continue (he once said that his favorite holding period is forever).|pagebreak|
Dollar Tree (DLTR)
As with Dollar General, a still-weak economy and high unemployment rate have created the perfect environment for Dollar Tree to achieve success. Part of this is a broad money-saving mindset among all consumers that are pinching pennies anywhere they can.
Dollar Tree’s earnings per share have been rising consistently for the last five years ($1.23, $1.41, $1.69, $2.37, and $3.23), with higher numbers predicted this year and next. Just this week, Dollar Tree reported its 11th straight quarter of profit growth and raised guidance for the rest of the year.
Dollar Tree sticks tight to its $1 price point for all items, distinguishing itself from some dollar-store competitors that go above that level. More than anything else, a trend in this sector is helping both DLTR and DG.
When consumers go to pay for their Christmas goods, they’ll most likely pull out a credit or debit card. Cash is no longer king in retail transactions, and companies like MasterCard are benefiting from that.
After MasterCard’s revenue growth shrank to just 2% in 2009 during the depths of the recession, it rebounded nicely in 2010 to 9%, and continued rising in 2011. Every time a consumer uses their MasterCard, the company gets a cut, and it’s sure to benefit from increased spending around the holidays.
The company is expanding outside the US to fast-growing markets around the world, focusing on debit cards, prepaid cards, and special programs to lure in customers. MA has appeared in Cabot Top Ten Trader 19 times—five times in 2011 alone, a very positive sign.
The company began in New Orleans in 1964, and has grown over the years by acquiring smaller chains of beauty supply stores, making it the largest such company in the world.
The company has two divisions: Sally Beauty Supply, which sells 8,000 professional hair, skin, and nail products in 4,200 stores, and Beauty Systems, which sells up to 10,000 products exclusively to professional stylists and salons in 1,000 stores.
The company has seen ten quarters of double-digit earnings growth that has continued in 2011, and the strength of this segment should continue to boost the company.