When the economy turns for the worse, it’s easy to spot the industries and the stocks that are going to suffer. High-end retailers, consumer discretionary names and the like usually take it on the chin when the going gets tough. Most investors know this. Finding the sectors and stocks that are apt to perform well when the broader market outlook is bleak is another task altogether. We’ve been highlighting a few of these names recently and have found another that offers investors compelling returns in this tough economic environment.
EZCORP Inc. (EZPW) is an operator of pawn shops and a provider of credit services such as payday loans. These aren’t glamorous businesses, and payday loans are downright controversial. Many states have passed substantive legislation limiting the scope of these loans in an effort to protect consumers from the high interest rates. Sometimes they are as high as 20% or more on loans of just $1,000. Despite the political pressure, payday loans are still a big business in the U.S., and Texas-based EZCORP is one of the dominant players in this space. They have 477 short-term loan centers throughout the country.
The company also has significant international exposure. Their partnership with Albemarle Bond & Holdings, a U.K.-based pawnbroker, and Cash Converters International, an Australian equivalent to EZCORP, gives the company a foothold in Australia, Spain, South Africa, and France among other countries. EZCORP also has 369 pawnshops in the U.S. It’s reasonable to expect traffic at these locations has been brisk as consumers trade in jewelry, collectibles, and other related fare to get their hands on some extra cash.
The performance of EZCORP’s shares would indicate as much. While the stock trails the S&P 500 on a year-to-date basis, zooming in on a more recent timeframe tells a different story. Over the past three months, EZCORP shares are up about 30%, nearly six times the performance of the S&P 500. EZCORP had a 20% correction back in June, but the shares have rocketed higher since then, touching a new 52-week high on December 21.
Of course, EZCORP has the fundamentals to support such a run. For its fiscal fourth quarter ending September 30, the company reported a 31% jump in profits as revenue rose 34%. In other words, EZCORP’s top line growth helped feed the bottom line – an impressive feat at a time when so many big companies were paring costs to meet profit targets. The company earned $1.42 a share for fiscal 2009, but the outlook is even brighter for fiscal 2010 when the company forecasts profits of $1.65-$1.69 a share. Chart lovers may note the point and figure chart signaling a run to $24 could be in the offing for EZCORP. Fundamental analysts may agree the bullish sentiment surrounding the stock is warranted. Either way, EZCORP trades at just nine times forward, making it a fairly cheap way to acquire such robust growth. To buy into cash-hungry consumers in an uncertain market, go with EZPW.
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Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.