Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
Show Time for Some Consumer Stocks by Sandra Ward
Summary: Portfolio manager Larry Haverty has earned his fund (Gabelli Multimedia Trust) over 50% in the past year by spotting 'elephants in the room' -- huge opportunity stocks to which others are inexplicably blind. He says record highs on the stock market are being fueled by, among other things, the Sarbanes-Oxley Act which has reduced scandals and made equities a safe place to be. His undervalued stock picks:
1) Las Vegas Sands Corp. (NYSE:LVS) -- Macau and Singapore governments are pushing gaming as 'green' (non-polluting) economy growth. LVS is the most active of six companies in the region. There will be an "oh-wow" moment when investors realize its potential, and all the operators, LVS in particular, will spike up.
2) Best Buy Co. Inc. (NYSE:BBY) -- its main competitor, Circuit City Stores Inc. (NYSE:CC), is under tremendous pressure. Video game sales are going to blowout 12% growth estimates this year (more like 25%) with the success of Nintendo and the release of Halo 3 and Grand Theft Auto, and a lot of that will go to Best Buy. The February 2009 rollout of all-digital TV will be "the mother of all catalysts for Best Buy" as 200 million TV sets become obsolete. The stock ($46) is going to $60.
3) Bed Bath & Beyond Inc. (NASDAQ:BBBY) -- "one of the best-managed retailers I have ever seen." Rival Linens & Things seems to be struggling. Shares have lagged despite stellar performance due to a lack of shareholder-centric initiatives. Management will ultimately be forced to stop being over-conservative, and shares ($37) will hit $45-50 within the year.
4) Kohl's Corp. (NYSE:KSS) -- it is a high-tech, low-expense true growth company whose gross margins outdo its competition. Kohl's is picking up customers from lagging sales at Sears Holdings Corp. (NASDAQ:SHLD) and Macy's Inc. (NYSE:M). It's only a matter of time until the market grasps its true value.
5) Viacom Inc. (NYSE:VIA) -- big entertainment is undervalued and Viacom is the most interesting of the lot. Transformers is going to be hugely profitable, and video-game Rock Band will generate $100M/year cash flow within a year. "CEO Sumner Redstone is back" -- he's reason enough to buy the company.