The New Look of Recession-Proof Stocks

By David Berman

There is a new kind of recession-proof stock for worrywart investors, but it certainly didn’t look recession proof at the start of our economic woes.

Demand for high-end yoga wear, iPhones and online retailing has proved to be virtually unassailable during these tumultuous times, surprising many observers.

Just take a look at Lululemon Athletica Inc. (LULU). This week, the yoga-retailer bumped up its third-quarter profit target by about 50% and raised its sales forecast by about 14%. Part of the increase is thanks to management improvements in areas like inventory controls. But, just as important, demand has held up.

“The consumer who is buying this product is affluent,” said Richard Jaffe, a retail analyst at Stifel Nicolaus. “They’re spending $200 on a workout outfit, they have a fair amount of free time to work out regularly and they are committed to their sport. We’re talking about a very small segment of the population.”

In other words, what recession?

Meanwhile, the share price has nearly doubled over the past 12 months, which is about four times the pace of the S&P/TSX composite index over the same period. Since hitting a record high in June 2008, the benchmark index is down 28% (even after the recovery since March), while Lululemon shares are up about 1%.

Apple Inc. (AAPL) is in a similar position. Demand for its iPhones, iPods and computers have held up remarkably well during the recession, despite some initial concern that demand would evaporate with plummeting consumer confidence and surging unemployment. Consumers have shown they’re willing to spend their cash on items they covet.

The shares recently hit a record high. Since the S&P 500 began to tumble in October 2007, Apple shares have risen a total of 16%, while the index has fallen 33% -- a spectacular 49-percentage-point outperformance.

Google Inc. (GOOG) and Amazon.com Inc. (AMZN) are in similarly recession-proof states. Amazon.com’s shares also recently hit a record high that, yes, surpassed the days of the technology bubble of the late 1990s.

The flip side to this trend, though, is that those stalwart defensive stocks that investors thought could be counted on for steady gains – utilities and consumer staples – have largely disappointed.

In Canada, Shoppers Drug Mart Corp. (SHDMF.PK) shares have fallen 24.5% since June, 2008. Tim Hortons Inc. (THI) shares have barely budged. In the United States, Procter & Gamble Co. (PG) – think soap and shampoo – has tumbled about 20% since October, 2007.

“The defensive stocks did what they were supposed to do when everything was going down,” said Murray Leith, director of research at Odlum Brown. “They went down less.

“I think what has come as a bit of a surprise is just how strongly the cyclical stocks have moved up. In some cases, they got so wiped out on the way down that they’re going to have very impressive percentage rallies on the way up, just by the nature of the stocks getting so wiped out.”

This certainly applies to Lululemon, Apple and Amazon.com, whose share prices were decimated during the depths of the stock market meltdown.

But what separates them from other stocks is that the fears surrounding their earnings and sales were overblown, to say the least – and the initial downturn in their share prices was nothing more than a blip, albeit a severe one.

Comments

[Jasper M:]

"Demand for high-end yoga wear, iPhones and online retailing has proved to be virtually unassailable during these tumultuous times"

Oh. OH! Could you Ask for a better demonstration of a culture that does not remember what hardship really is?
Citing stocks that have weathered the first phase of this depression well as "proof" vs. hard times is making a call really, Really early.

Oct 28 08:33 PM

[tagthatstock:]

LULU vs HOTT

some would say they shouldnt be compared. i really dont care what others say or think,,,,i approach all stocks from a tightwad investors point of view. i look at the math.

HOTT and LULU both have similar positive aspects: both have positive margins, profiability, both have positive cashflows in BOTH catagories. both are debtfree both are good with assetts and equity. but the

value difference comes in revenues and valueations of each company.

lets suppose i want to buy a company dirt cheap,,,,and later sale it to somebody else. well i want to make sure i dont pay too much for the company i buy,, so i need to run some business math checks:

HOTT at $5.80 has a enterprise value (that is todays daytrader marketcap value AND any known/hidden debt issues) of $173m. so this tells me that i can buy a company with $768m in revs with cash and no

debt for a fraction of what the suckers in LULU will pay me to buy out my HOTT investment down the road. 'thats a good bet' on top of my views that HOTT's target customer doesnt have a mortgage to worry

about,,, and LULU's does and Academy can sell their customers any yoga gear they may think they must have.

HOTT $5.80
VALUATION MEASURES
Market Cap (intraday)5: 255.65M
Enterprise Value (20-Nov-09)3: 173.60M ----------the whole bowl of wax
Price/Sales (ttm): 0.33 -----------note the $17.48 per share rev's,,,,HOTT is a fraction of LULU= HOTT is dirt CHEAP
Price/Book (mrq): 0.98
Enterprise Value/Revenue (ttm)3: 0.23 -------> HUGE DISCOUNT
Enterprise Value/EBITDA (ttm)3: 2.513

Income Statement
Revenue (ttm): 768.20M
Revenue Per Share (ttm): 17.484

Balance Sheet
Total Cash (mrq): 82.05M
Total Cash Per Share (mrq): 1.862 -MORE cash per share than LULU
Total Debt (mrq): 0
Total Debt/Equity (mrq): N/A
Current Ratio (mrq): 3.111 ----------nice credit rating!
Book Value Per Share (mrq): 5.905

Share Statistics
Average Volume (3 month)3: 1,145,120 -WRONG WAY WALLSTREET SELLING
Average Volume (10 day)3: 1,883,170
Shares Outstanding5: 44.08M
Float: 43.47M ------>SMALLER FLOAT THAN LULU
Shares Short (as of 30-Oct-09)3: 4.48M
Short % of Float (as of 30-Oct-09)3: 12.60%
Shares Short (prior month)3: 5.04M - was higher accumilation has begun & short squeeze is next


LULU $26.96
VALUATION MEASURES

Market Cap (intraday)5: 1.89B
Enterprise Value (20-Nov-09)3: 1.81B
Price/Sales (ttm): 5.11 -------------->already fully overpriced for perfection!!!!
Price/Book (mrq): 10.69
Enterprise Value/Revenue (ttm)3: 4.89 ------mega overpriced! HOTT far better 'deal'
Enterprise Value/EBITDA (ttm)3: 23.869

Income Statement
Revenue (ttm): 370.47M ----HALF OF HOTT REV'S
Revenue Per Share (ttm): 5.304 ---------HOTT makes $17.48 per share!

Balance Sheet
Total Cash (mrq): 83.80M
Total Cash Per Share (mrq): 1.193
Total Debt (mrq): 0
Total Debt/Equity (mrq): N/A
Current Ratio (mrq): 4.047
Book Value Per Share (mrq): 2.521

Share Statistics
Average Volume (3 month)3: 610,064 ------->WALLSTREET NOT BUYING
Average Volume (10 day)3: 478,100
Shares Outstanding5: 70.25M
Float: 56.63M
Shares Short (as of 30-Oct-09)3: 7.41M
Short Ratio (as of 30-Oct-09)3: 10.3 ---shorting more has begun
Short % of Float (as of 30-Oct-09)3: 42.60% -----kind of hard to squeeze a stock at the top end of range
Shares Short (prior month)3: 7.55M --'squeeze' already happened with cramer pump

Nov 20 07:10 AM