The Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY) and the Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP) were up 3.0% and 4.4% respectively during the June 2011 quarter, while the S&P 500 was down half a percent. Of the approximately 500 stocks in the consumer sector, 70 stocks trading above $1 at closing on June 30th went down more than 25% during the quarter and another 30 went up more than 25% during the quarter (see Table). These 100 stocks were analyzed to determine if they would continue in the same direction, or if they would reverse their moves going forward. The following are the best buy and sell ideas based on that analysis.
Sell Sirius XM Radio Inc. (NASDAQ:SIRI): SIRI provides over 135 digital-quality satellite radio channels to over 20 million subscribers in the U.S. and Canada. The stock has rallied almost 50-fold from a 5.2c low in early 2009, and is up 150% from sub-$1 levels at this time last year. Revenues reported in the latest March 2011 quarter were up only 9% year-over-year and earnings were flat at 1c. While the macro-economic outlook has improved in the last two years, clearly the extent of the rally cannot be justified by fundamentals alone. It appears that at this point the price of SIRI stock is disconnected from the fundamentals, and that speculators have taken control of this extremely high volume stock that trades almost 100 million shares on an average day. Besides high valuation, SIRI also faces a much more competitive environment going forward and it carries a crushingly high debt load that may limit its options going forward. Furthermore, car sales that have been bolstering SIRI revenues could fall and the global economy is clearly not out of the woods. We believe that at some point, these risks will begin to weigh down the stock, and that the greater fool theory may stop working, and then the stock could easily head back down towards $1.
Sell Melco Crown Entertainment ADS (NASDAQ:MPEL). MPEL is an owner and developer of casino gaming and entertainment resort facilities that are focused on the rapidly expanding gaming market found in Macau. The company has missed analyst earnings estimates in three of the last four quarters, reporting 1c in the recently reported March 2011 quarter versus analyst estimates of 6c. The stock is up 300% in the last year, and currently trades at trailing twelve month (TTM) P/E of 1300 and a forward P/E of 34 based on projected December 2012 fiscal year earnings. The strength then is based not on reported company-specific fundamentals, but on the strength of the Macau gaming market. Casinos in Macau generated over $3 billion in revenue in June, up 52% year-over-year. MPEL is one of only six companies licensed to operate casinos Macau, and should greatly benefit from the strength of the Macau gaming market. However, at $14, it has probably priced in most of the upside, and the risk here maybe to the downside due to either company-specific execution risk or market risk.
Buy Expedia Inc. (NASDAQ:EXPE). EXPE is one of the largest online travel companies in the world, and operates under the brands Expedia.com, Hotels.com, Hotwire.com, Venere, TripAdvisor.com, Classic Vacations, Expedia Local Expert, Egencia and eLong (NASDAQ:LONG). The stock trades at a forward P/E of 14, in the lower half of its historic range. Meanwhile, earnings have been rising every year since 2006, and are projected to grow in the mid-teens going forward. As a comparison, its closest peer Priceline.com Inc. (NASDAQ:PCLN) trades at a forward 20 P/E, and faster growing Travelzoo Inc. (NASDAQ:TZOO) trades at forward 32 P/E. We are bullish on EXPE as the company is a consistent performer and it trades at a cheap P/E based on its own historic range and in comparison to its peers. Furthermore, the ongoing global economic recovery will drive increased personal and corporate travel spending both domestically and internationally, which should lead to continued outperformance going forward.
Other Ideas: Some other high-profile movers in the list include:
- Consumer services companies such as Dish Network Corp. ClA (NASDAQ:DISH), a provider of broadcast satellite service nationwide; and Dreamworks Animation (NASDAQ:DWA), a developer and producer of computer-animated feature films for a broad movie-going audience.
- Consumer technology and accessories companies such as Zagg Inc. (NASDAQ:ZAGG), a manufacturer of protective film covering for the surface of electronic devices under the invisibleSHIELD brand name; Universal Display Corp. (NASDAQ:PANL), a designer of organic light emitting diode devices for flat panel displays used in the consumer electronics market; and Zoom Technologies Inc. (NASDAQ:ZOOM), a developer of broadband and dial-up modems, VoIP products and services, and Bluetooth wireless products;
- Consumer cyclical companies such as Crocs Inc. (NASDAQ:CROX), a manufacturer of men’s, women’s and children’s footwear made with proprietary resin material call croslite; Skechers USA Inc. (NYSE:SKX), a marketer of men’s, women’s and children’s casual, dress and athletic footwear via department and specialty stores; and SodaStream Intl Ltd. (NASDAQ:SODA), an Israeli manufacturer of home beverage carbonation systems, which transforms tap water into soft drinks or sparkling water;
- Consumer non-cyclical companies such as Pilgrim’s Pride Corp. (NASDAQ:PPC), a producer of prepared and fresh chicken in the U.S., Mexico and Puerto Rico for the food-service industry; Agfeed Industries Inc. (OTC:FEED), a Chinese breeder and producer of hogs for slaughter and breed stock and manufacturer of animal feed; Hansen Natural Corp. (HANS), a manufacturer of alternative beverages, including energy drinks, fruit juices, smoothies and natural sodas.
Of these, DISH, PANL and SODA are the only ones that are under heavy accumulation by high alpha or guru funds that have a long-term track record of beating the market averages. In contrast, HANS is under heavy selling by guru funds, as they disposed of $141 million from their $298 million prior quarter position in the company during the March 2011 quarter.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.