The market isn't going straight up anymore. While the S&P 500 and its tracking exchange traded fund, SPY (SPY), is up more than 20% since the summer lows of 2011, and some stocks, such as Apple (AAPL), are up over 30% this year, many stocks in cyclical sectors, such as retail and industrials, have sold off hard over the last couple of weeks.
Indeed, while the economic data in the U.S. and Europe has been disappointing of late, the recent jobs report was largely in-line with lower expectations, the U.S. economy continues to expand at 2-2.5%, and recent earnings reports from companies such as Citigroup (C) and JP Morgan (JPM) continue to show an acceleration in consumer spending.
VFC (VFC) is a retail company that gets nearly 70% of its revenues overseas. While VFC will obviously be affected by an economic slowdown, the company's product portfolio is largely discount and luxury products. VFC's strongest brand North Face, sells largely to a higher end consumer, and the company's recent acquisition of Timberland also sell at the higher end as well. VFC's other major brand, Wrangler, obviously sells at a much lower price point, and is a brand that offers good value during tough economic times.
Despite VFC's recent strong earnings reports, the stock has also sold off much more than most of the broader indexes, including most retail stocks.
VFC now trades at around 12x an average estimate of next year earnings and yields nearly 2%. The company was one of the few retail companies that never cut the company's dividend during the height of the recession, the company's recent Timberland acquisition has been very well-integrated with its Northface brand, and VFC has consistently raised its dividend over the past several years.
Cummins (CMI) is a company that is the largest maker of some of the biggest diesel engines in the world. Cummins gets nearly 65% of its revenues overseas, the company has a joint venture with Westport Innovations to develop natural gas engines, and management has guided to a 12-15% annual growth target from 2012-2015.
Cummins's management was cautious in their guidance during the recent earnings report, but Cummins has a history of giving cautious guidance.
The stock has sold off hard over the last couple weeks compared to most industrial stocks.
Cummins is obviously tied to the truck market, but the primary appeal of the company's products is that Cummins's engines offer fuel and cost savings. With interest rates low and fuel prices high, the trucking market in the U.S. and Europe has held up fairly well.
Currently, Cummins's shares trade at just 9x an average estimate of next years earnings, and the stock is nearly 30% of its March highs of around $125 a share.
Finally, Lorillard (LO) is a tobacco company with less than 15% of the U.S. tobacco market that continues to grow the company's revenues at around 10% a year. While the U.S. tobacco market continues to shrink each year, Lorillard is the only tobacco company of the big three that has shown continual market share gains and increase cigarette shipments. Lorillard also raised its dividend by 20% recently, for the second year in a row, more than double what the amount that the company's larger peers, Altria (MO) and Reynolds (RAI).
Despite strong recent earnings reports showing continued market share gains and increased cigarette shipments year-over-year, Lorillard has sold-off nearly 8% in the past week.
Lorillard has minimal debt on the company's balance sheet, has been able to borrow at just 2%, and continues to grow the company's market share by nearly 10% a year, with new cigarette brands such as the Maverick.
To conclude, while the S&P 500 and most of the broader indexes have declined at a steady pace, the sell-off in many specific companies' stocks has been brutal. Buying stocks that are in downtrends is always difficult, but an economic slowdown will not affect all companies equally.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.