Are you an active investor in consumer stocks? Are you encouraged by the improving macro environment, the stock market rally, and a positive U.S. job report? If you think this will translate into an improved spending environment, the consumer sector might be of interest to you.
We took a contrarian view, and looked for dividend paying consumer stocks being sold off by institutional investors. We started by looking for consumer stocks with a minimum dividend yield of 1%. This search left us with 19 stocks on our list.
We then researched the 13F's for all stocks to get the names of institutional sellers of the stock. We focused on those with bearish sentiment from institutional investors, with significant net institutional sales over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to underperform in the future.
We were left with 3 stocks on our list. At first glance, the yields on the stocks look attractive, but further analysis showed us that there are several reasons why money managers might be selling these attractive dividend consumer stocks.
A Closer Look
Valuation: JAKKS Pacific (JAKK) is trading around $13.22 versus its 52-week range of $11.83-$19.39, down 12% in the past 1-year. The stock trades with a forward P/E multiple of 22 times, and pays a dividend of 3.1%. The company's closest peer, Mattell (MAT), trades with a forward P/E multiple of 13.6 times, and Hasbro (HAS) trades with a forward P/E multiple of 13.4 times. Clearly, the stock trades richer than its peers.
Fundamentals: As of September 30th, 2012, the company has $140 million in cash and cash equivalents, and $94 million convertible debt. The company has a $75 million credit facility, which matures in April 2013, and has $53.4 million in outstanding loans. As of September 30th, 2012, the company was not in compliance with two of the three financial covenants under the loan agreement. Do you think this is the reason for the negative sentiment from institutions? The company is expected to report earnings on February 21st, 2013. It will be interesting to hear management's plans going forward.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
Do you think these stocks deserve this negative sentiment? Use this list as a starting point for your own analysis.
1. Cott Corporation (COT): Engages in the production and distribution of retailer brand beverages in North America and internationally.
- Market cap at $864.05M, most recent closing price at $9.06. Dividend yield at 2.65%.
- Net institutional sales in the current quarter at -4.8M shares, which represents about 6.19% of the company's float of 77.50M shares. The top 2 sellers of the stock are Wellington Management, and Intrepid Capital Management.
2. JAKKS Pacific, Inc. : Designs, produces, markets, and distributes toys and consumer products worldwide.
- Market cap at $287.58M, most recent closing price at $13.06. Dividend yield at 3.1%.
- Net institutional sales in the current quarter at -4.5M shares, which represents about 23.5% of the company's float of 19.15M shares. The top 2 sellers of the stock are FMR, LLC., and Dimensional Fund Advisors.
3. True Religion Apparel Inc. (TRLG): Designs, develops, manufactures, markets, distributes, and sells apparel in North America, Europe, Asia, Australia, Africa, and South America.
- Market cap at $611.48M, most recent closing price at $23.71. Dividend yield at 3.37%.
- Net institutional sales in the current quarter at -1.4M shares, which represents about 5.86% of the company's float of 23.89M shares. The top 2 sellers of the stock are Prudential Financial, and Paradigm Capital Management.
*Institutional data sourced from Fidelity, all other data sourced from Finviz.