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Summary

  • US GDP growth released Wednesday showed a 2.7% contraction, its poorest quarter since the 2009 recession.
  • Durable goods orders fell off 1%; however, outside of military spending, orders rose.
  • Part of the drop-off also had to do with reduced healthcare spending.

The report on US GDP growth came out Wednesday morning, and the news was discouraging: at a 2.7% contraction, it was essentially the worst performing quarter since the 2009 recession.

But there are several caveats to that comparison. For instance, the US lost more than 2 million jobs in the same quarter in 2009; in this quarter, it gained about 600,000. Part of the drop-off also had to do with reduced healthcare spending.

One good piece of news buried in the ambiguous data, however, is the durable goods report, which sent similarly mixed messages. Durable goods are products that last at least three years. They are important to follow because they signal corporations and people making bigger investments in their factories and homes.

On one hand, durable goods orders fell off 1%. However, when you looked outside of military spending, where demand for machinery fell, orders actually rose. That's one sign that the economy might be improving despite the GDP report.

We decided to build a list of durable goods stocks that have encouraging inventory trends. This means that inventory is decreasing as a percentage of net assets - in other words, that either the company is selling more of its stuff, or selling its stuff at higher prices. It also means that revenue is growing faster than inventory.

1. Cavco Industries Inc. (CVCO, Kapitall snapshot): Engages in the design, production, wholesale, and retail marketing of manufactured homes. Market cap at $723.84M, most recent closing price at $81.79.

Revenue grew by 20.56% during the most recent quarter ($131.21M vs. $108.83M y/y).

Inventory grew by 1.34% during the same time period ($69.73M vs. $68.81M y/y).

Inventory, as a percentage of current assets, decreased from 35.4% to 30.6% during the most recent quarter (comparing 3 months ending 2014-03-29 to 3 months ending 2013-03-30).

2. General Motors Company (GM, Kapitall snapshot): Operates as a global automaker. Market cap at $58.09B, most recent closing price at $36.22.

Revenue grew by 1.42% during the most recent quarter ($37,408M vs. $36,884M y/y).

Inventory grew by -2.39% during the same time period ($14,837M vs. $15,200M y/y).

Inventory, as a percentage of current assets, decreased from 20.95% to 17.09% during the most recent quarter (comparing 3 months ending 2014-03-31 to 3 months ending 2013-03-31).

3. Movado Group, Inc. (MOV, Kapitall snapshot): Designs, sources, markets, and distributes fine watches and jewelry. Market cap at $1.05B, most recent closing price at $41.42.

Revenue grew by 9.92% during the most recent quarter ($120.92M vs. $110.01M y/y).

Inventory grew by 5.31% during the same time period ($184.44M vs. $175.14M y/y).

Inventory, as a percentage of current assets, decreased from 41.71% to 38.35% during the most recent quarter (comparing 3 months ending 2014-04-30 to 3 months ending 2013-04-30).

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Kapitall is a team of analysts. This article was written by James Dennin, one of our writers. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article.

Source: These 3 Durable Goods Stocks Have Encouraging Inventory Trends