By Larry Gellar
As discussed here, there are a variety of stocks that could benefit if President Obama’s jobs plan is passed. While the chances of it going through exactly as he laid out on Thursday night are unlikely, we think many components of the plan will be ratified. Here are 5 stocks that could go up significantly as a result:
Dollar Tree, Inc. (DLTR) was down nearly 2% on Friday, although the big news in this industry has been an announcement that many insiders at Dollar General (DG) are selling their shares. Specifically, Buck Holdings, which is associated with many on the company’s board of directors, as well as the CEO himself are going to be two of the biggest sellers. On the other hand, the dollar industry as a whole is quite strong right now, as discussed here. In fact, Dollar Tree is notably different than other many other dollar stores because literally everything at Dollar Tree is $1 or less. (Note that other dollar chains such as Family Dollar Stores (FDO) and Dollar General tend to price items up to $10). As for value metrics, Dollar Tree has a higher price to earnings ratio and higher price to sales ratio than 99 Cents Only (NDN), Dollar General, and Family Dollar Stores. Price/earnings to growth and gross margin for Dollar Tree are about at the middle of the pack, while operating margin is particularly strong for the industry at 11.47%. Cash flows for Dollar Tree have been mixed though, with $260.4 million streaming out in the year ending January 29th, and $110.4 million streaming in during the 6 months after that.
McDonald’s Corp. (MCD) was down over 4% on Friday, as the company announced results for stores open at least 13 months. That number grew by 3.5%, less than what analysts were expecting. In fact, McDonald’s results for the emerging markets were particularly worrisome, as the stores open at least 13 months in those regions actually had a bit of a sales decline. Considering future growth for McDonald’s will come mostly from those same emerging markets, this has many investors concerned. On the other hand, higher commodity prices are one factor that caused these somewhat disappointing revenues, which means McDonald’s competitors will have to deal with those as well. In fact, McDonald’s most important competitor may be Yum! Brands (YUM). That company has a higher price to earnings ratio than McDonald’s, while McDonald’s has the higher price to sales. Price/earnings to growth for McDonald’s is also a bit higher than Yum! Margins for McDonald’s are quite strong though compared to the rest of the restaurant industry – gross margin is 39.74% and operating margin is 30.44%. Additionally, quarterly revenue growth is 16.1% year over year. As for cash flows, $591 million came in during 2010, while $317 flowed out in the first half of 2011.
Starbucks Corporation (SBUX) – This famous coffee maker was down over 4% on Friday. At least one writer thinks that the country’s economic problems could actually be good for this stock, as discussed here. Importantly, many of the country’s unemployed are using Starbucks as a hangout spot while they browse the Internet for jobs. Like McDonald’s, Starbucks has been hurt by high commodity prices. Regardless, the stock could be a good pick for its growing business in China, notably the instant-coffee packets it is distributing in partnership with Green Mountain Coffee (GMCR). Other news for Starbucks has included the Starbucks Cup Summit it is hosting at MIT. This summit hopes to improve recycling efforts throughout the food/drink industry, and it will probably help Starbucks PR if nothing else. Important competitors for Starbucks include Dunkin’ Brands (DNKN), McDonald’s, and Nestlé (OTC:NSRGY). Dunkin’ has the highest price to earnings and price to sales of those companies by far, although price/earnings to growth for DNKN isn’t as high. Starbucks is the cheapest using that metric, with a price/earnings to growth ratio of 1.53. Operating margin for SBUX is somewhat weak at 12.97%, although gross margin is better at 58.29%. Cash flows for SBUX have been strong - $564 million came in for the year ending October 3rd, 2010, and $556.8 million came in for the 9 months after that.
Caterpillar Inc. (CAT) – This construction mainstay was down over 3.5% on Friday, although some investors remain bullish on the stock. Specifically, some like it because inventory growth has been about in line with revenue growth. Additionally, much of this inventory was work-in-progress inventory, which is a good thing. More reasons to consider CAT can be found here. These include a strong balance sheet and high price targets from analysts. Future growth, especially in the emerging markets, is also expected. More information about potential growth in the emerging markets can be found here. Important competitors for Caterpillar include CNH Global (CNH), Komatsu (OTC:KMTUY), and Volvo (OTC:VOLVY). All of these companies offer a price to earnings ratio about 4 points lower than CAT. CAT’s price to sales is also pretty high for the industry at 1.1. Price/earnings to growth is a bit more reasonable though (0.74), and margins are about average as well. Gross margin is 27% and operating margin is 11.7%. Quarterly revenue growth year over year is a whopping 36.7%, and cash flows for the first half of 2011 have been quite strong - $7.123 billion came in. 2010 wasn’t quite as good though - $1.275 billion flowed out that year. Other important statistics for CAT include dividend yield of 2.1% and beta of 1.93.
Navistar International (NAV) – This maker of trucks and truck parts was down 4.51% on Friday. As discussed here, management’s recent plans to end partnerships with Ford (F) and Cummins (CMI) has many shareholders rather confused. Revenue for NAV has grown about as expected, although margins are another concern. Cuts in defense spending have also hurt this company. More info about Navistar’s recent earnings can be found here. Specifically, higher commodity costs have played a factor in the company’s performance as of late, although these are starting to improve. Additionally, the company has won a host of J.D. Power awards recently, including the one for Class 8 Heavy Duty Engine of the Year. Furthermore, Navistar is excited about some products that have not come out yet. Important competitors for NAV include BAE Systems (OTC:BAESF) and PACCAR (PCAR). Navistar’s price to sales is quite low compared to those two other companies, although price to earnings ratio is about at the middle of the pack. Price/earnings to growth is 0.44, which is somewhat low. Gross margin at 18.94% is strong, while operating margin at 4.05% is rather weak. Cash flows for NAV aren’t very good either - $627 million flowed out for the year ending October 31st, 2010, and $141 million flowed out for the 9 months after that.