With the holidays coming down the pike (or chimney), it’s time to take a look at ten retail names that could outperform this holiday season.
We screened for companies trading at a trailing price/earnings to growth ratio of less than 1 with return on equity above 20%. We are looking to screen for cheap growth coupled with high returns on invested capital. ROE [return on equity] is a decent proxy for ROIC [return on invested capital]. High numbers indicate the company has a good chance of deploying capital at rates in excess of its costs of capital are. This would endow an economic moat around the business. Here’s what we came up with, plus some commentary on each:
Avon Products (AVP): This extremely profitable cosmetics giant released earnings last week with revenue rising 3.8% to $2.62 billion. Analysts expected $2.69 billion. As a result the stock tumbled. But with ROE consistently above 50%, a 3% dividend yield, margins on the mend once restructuring efforts are realized, and the prospect of a buyout still trickling around the rumor mill, AVP shares appear cheap with the holiday season approaching.
Carter’s Inc (CRI): A leader in the children’s apparel space, Carter’s maintained a commendable 12.9% market share last year. That along with CRI’s varied distribution network, ROE in the mid-20%, demographic tailwinds and the firm’s historical ability to maintain strong profit margins could cause Carter’s to outperform analyst expectations in the next quarter.
Deer Consumer Products Incorporated (OTC:DEER): This small-cap maker of home and kitchen appliances has 56% insider ownership. This is good news for investors seeking management with investors' interests in mind. Along with TTM ROE of 29%, DEER offers investors a decent way to get exposure to the home furnishing sector.
G-III Apparel Group (GIII): This clothing licensee for brands from Calvin Klein to Kenneth Cole surprised analysts in September after posting a surprise profit. On the news the stock jumped 17% and has been trading sideways ever since. But another surprise from this clothing company could reward investors during the holiday season.
Steve Madden (SHOO): This shoe designer has recently saw profits pop 29%, but also experienced a fall in share price after third quarter wholesale gross margins shrunk. That doesn’t mean SHOO, with an ROE of 24%, won’t continue to grow into the holidays and beyond.
Tempur-Pedic International (TPX): This profitable maker of super comfortable mattresses and pillows has a ROE of 135%. And in light of a pinched consumer, Tempur-Pedic has rolled out a Cloud line of mattresses for those who want to sleep comfortably on the cheap.
Oxford Industries (OXM): Another clothing manufacturer, OXM sports a ROE of 24% and has licenses to produce clothing under high quality brand names like Tommy Hilfiger, Nautica and Dockers.
Kids Brands Inc (KIDS): This pure-play specialty gift manufacturer has a line of affordable stuff kids and gifts that make great stocking stuffers. ROE of 27%. An interesting growth idea this season.
Guess (GES): A strong brand name and a very strong international presence makes Guess a compelling pick. The company plans to open 148 stores next year, leaving the firm with 965 retail stores. Plus the company has very little long term debt and saw top line revenue increase by 10.5% to $577 million during the third quarter.
Tupperware Brands Corp (TUP): ROE of 34. Raised dividend payment .05 cents to 30 per share. Like Avon, this company rose on the back of direct sales model, a model that could work well as the company expands further in developing markets.
Disclosure: Author is short AVP puts