By Larry Gellar
We’ve identified 5 stocks to buy now for big profits in 2013. Disney (DIS), Pepsico (PEP), and Boyd (BYD) have largely been ignored by investors and have significant upside potential. Additionally, Dunkin’ (DNKN) has some exciting new ideas that can shake up its unique doughnuts business. Also, Lowe’s (LOW) is remaining competitive despite a tough economy. Let’s see what’s been happening with these 5 stocks:
Dunkin’ Brands Group, Inc. has been volatile the past few months, although business should improve as the holiday season gets under way. A special promotion that allowed customers to win a Keurig brewer and a set of Dunkin’ Donuts K-Cup packs certainly stirred some excitement up. The Keurig brewer is actually made by a subsidiary of Green Mountain Coffee Roasters (GMCR), and it represents one way that Dunkin’ is working effectively with other companies. On the financial side of things though, investors should be aware of a recent insider sale involving DNKN. In fact, Bain Capital recently sold over 6 million shares worth more than $150 million. In fact, Carlyle Group and Thomas H. Lee Partners have also been involved in some insider sales of DNKN lately. Important competitors for Dunkin’ include Starbucks (SBUX) and Yum! Brands (YUM). Those stocks trade at about half of Dunkin’s price to earnings and price to sales ratios, although they are a bit closer in terms of price/earnings to growth. Margins-wise, Dunkin’ is doing great, with gross margin at 80.27% and operating margin at 32.68%. Cash flows have been good too, with $80 million coming in during 2010 and $47 million coming in during the first 9 months of 2011.
Walt Disney Co. has been about flat the past few months, although an end to the NBA lockout could provide a big boost to this stock. Keep in mind that Disney owns ABC and the ESPN family of networks, both of which often broadcast NBA games. In fact, current plans are to have the season start on December 25, and all of the December 25 games run on channels owned by Disney. Things haven’t been as rosy for Disney near Washington, D.C. though as once again the company is having problems in the area. Specifically, plans to build a resort hotel at National Harbor in Prince George’s County have been canned. A tough economy may be to blame, but that doesn’t mean Disney isn’t doing well in other markets. Disney has just acquired a 49% stake in Russian TV network Seven TV, which will be renamed The Disney Channel. Important competitors for Disney include News Corp. (NWSA) and Time Warner (TWX). Those stocks are quite similar in terms of price to earnings, price/earnings to growth, and price to sales. Additionally, operating margin of 19.03% puts Disney right in the middle of News Corp. and Time Warner. As for cash flows, Disney brought in $403 million for fiscal year 2011.
Lowe’s Companies Inc. has gone up significantly the past few months, and some bullish sentiment for the stock can be found. The key here is that while Lowe’s does lag competitors in some crucial statistics, the stock has some serious upside regardless. Furthermore, as described here, some areas of Lowe’s business are doing pretty well. Specifically, those include “roofing products, dehumidifiers, pumps and tanks, generator, wet dry vacuums and cleaning supplies.” Investors may also be interested to know of Lowe’s financing plans. In fact, $500 million of 3.8% 10-year notes and $500 million of 5.125% 30-year notes have just been released. According to Lowe’s press release, uses for this money “may include repurchases of shares of our common stock, capital expenditures, acquisitions and working capital needs.” Compared with its rival Home Depot (HD), Lowe’s has a higher price-to-earnings ratio but lower price/earnings to growth and price-to-sales ratios. Operating margin for Lowe’s is a bit lower than Home Depot, although gross margin is nearly the same. As for cash flows, $20 million came in during fiscal year 2011 and $23 million came in during the 9 months after that. Cash from operating activities has been pretty strong during this time.
Pepsico, Inc. has traded about flat for the past few months, although many dividend investors are starting to take note of the stock. Dividend yield is currently 3.3%, and there are numerous factors why this should keep up (or get even better). Meanwhile, rumors abound that Pepsico is looking to buy Marilan Alimentos SA. Marilan is a Brazilian maker of cookies, and this could be a good way for Pepsico to make even further progress in the emerging markets. In fact, emerging markets is one reason why many are quite bullish on Pepsico at the moment. Buying Grupo Mabel should help business in Latin America, and another deal in China also has investors excited. Pepsico’s problem in China has mostly centered on the fact that its market share is about a third of Coca-Cola’s (KO) and increasing material costs don’t help either. That’s why Pepsico plans to work with Tingyi Holding Corp., which will hopefully fix both of those problems. Besides Coca-Cola, Pepsico competes largely with Dr. Pepper Snapple (DPS) and Kraft (KFT). Price to earnings, price/earnings to growth, and price to sales ratios are all close between Pepsico, Dr. Pepper Snapple, and Kraft. As for margins though, Pepsico is notably lagging behind Coca-Cola – those numbers for Pepsico are 53.25% gross and 15.66% operating.
Boyd Gaming Corp. has been about flat the past few months, but a strong bullish argument for the stock can be found here. Because the company doesn’t have ridiculous large properties like other players in the casino industry, it can still do well in these economically challenged times. Additionally, there’s reason to believe that this stock has been oversold and current supply conditions mean that a short squeeze could be on the way. Boyd’s also made some SEC filings that can be found here. The gist of it is that some of Boyd’s loans are being refinanced, a wise move in these times of low interest rates. In other news, Boyd is going to team up with Bwin.party (PYGMF.PK) and MGM (MGM) to create an online poker site that meets U.S. regulatory standards. This comes after three big Internet poker web sites were charged with fraud earlier in the year. One important competitor for Boyd is Las Vegas Sands (LVS). That stock has a high price-to-earnings ratio and price-to-sales ratio but a very low price/earnings to growth ratio. Boyd is decent margins-wise, with gross margin at 37.71% and operating margin at 9.78%. Furthermore, cash flows have been good, with $52 million coming in during 2010 and $30 million coming in during the first half of 2011.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.