Investing over the past five months has proved to be a difficult endeavor to say the least. Volatility has been extremely high with the VIX over 25 and much of the time over 30 until this past week. This has translated into unpredictable large daily moves with every headline coming out of Europe. Although the situation in Europe has the potential for disaster, the U.S. markets have been extremely resilient. As of the close Monday, the S&P 500 is almost flat on the year. Not bad considering that Standard and Poors downgraded the U.S. sovereign debt rating and Europe is still questionably pulling together a rescue package for the PIGS. European (excluding the FTSE 100) and Asian markets are down approximately 15% or more YTD. Although U.S. companies that miss earnings estimates have been punished, there are many companies with strong earnings growth and fundamentals. Three stocks fitting these parameters approaching 52 week highs are as follows.
Ulta Beauty Salons (ULTA) - The company recently reported third quarter earnings and the following day had a positive reaction to the results. Major resistance and the possible breakout level is just above $75.
- Third quarter net sales up 21.8% over the prior year, Diluted EPS up 82.6% from the prior year.
- Improving gross margin to 36.1% from 35.1% a year ago and decreasing SG&A expenses, down 1.8% as a percentage of net sales, could represent economies of scales for the company as they open more stores.
- ROE above 20% and management commented they would accelerate expansion due to the strength of their new store pipeline.
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Hansen Natural (HANS) - This company has been on my radar for a long time and rightfully so. The company reported third quarter results at the beginning of November and has been stuck in a range since then. I do like that the stock is making higher lows and pushing against resistance just above $95. Volume has been low since earnings but I expect the stock will make another run at new highs.
- The company reported third quarter net sales increase of 24.4% over the prior year, diluted EPS increased 23.3% over the prior year.
- Gross profit improved to 52.7% up from 51.9% in the prior year and ROE over 31%.
- The highlight for the company is the Monster Energy line of drinks. According to a Neilson report (cited in the earnings transcript), Monster Energy growth outpaced the industry average and its competitors including Redbull and 5-Hour Energy. Redbull has a slight edge in market share at 31.8% vs Monster at 30.4% measured in dollar terms.
Tractor Supply Co. (TSCO) - Tractor Supply reported strong earnings back in October and has been trying to break out ever since. The reversal day on 11/16/11 is of concern as sellers stepped in to reject the breakout on higher than average volume. However, the overall market had a horrible week which contributed to the downmove.
- The company reported a third quarter increase in net sales of 17.9% over the prior year and net income grew 43.1% over the prior year. Management raised FY11 guidance above analyst estimates.
- Comparable store sales improved 11.5% compared to 5% in the prior year and the company has a ROE over 22%.
- The company has a small dividend at $0.12 per share but more importantly the company has a stock repurchase program of which over $500 million remains outstanding under the program. The repurchase program is through 2015 but at today's market price that represents over 700,000 shares in repurchases.