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  • Are Stronger Sales In Store For These US Consumer Goods Stocks?

    Consumer spending rose 0.9%, or $107.2 billion, in March, according to the latest figures from the Commerce Department. Bloomberg reports the increase was the biggest recorded since August 2009, and that the gain beat the average estimate of 0.6% growth. The uptick in spending bodes well for the second quarter and supports theFederal Reserve's claim that the US economy was on the rebound after a dismal first quarter of negligible growth.

    Household purchases are the primary driver of the economy, accounting for nearly 70% of the US's GDP. They include nondurable goods such as food and clothing, longer-lasting durable goods like cars and computers, and services, which covers everything from banking to travel lodging.

    Durable goods experienced the biggest gain in spending in March, rising 2.7%. Goods spending jumped 1.4%, and services increased 0.7%.

    Investing Ideas

    Today's consumer spending report inspired us to look for investment opportunities in the consumer goods sector. We began with a universe comprised of US consumer goods stocks (durable and non-durable), which we then screened for encouraging inventory trends given March's increase in spending.

    Specifically, we looked for stocks that saw two things: faster growth in quarterly revenue than inventory over the past year, and a decrease in inventory as a percentage of current assets. Companies that satisfy these criteria are efficient when it comes to selling their goods and services, and also offer products that are in great demand.

    We ran the remaining stocks through the DuPont analysis of ROE in order to get a better sense of their profitability. The DuPont equation uses a company's profit margin, total asset turnover, and financial leverage from its most recent quarter (MRQ) to analyze its return on equity.

    When a company's profitability originates from an increase in net profit margin and/or asset turnover, the company's source of growth is considered positive. On the other hand, an increase in leverage ratio is viewed as a negative source.

    We were left with five stocks on our list.

    1. Flexsteel Industries Inc. (FLXS, Earnings, Analysts, Financials): Together with its subsidiaries, manufactures, imports, and markets residential and commercial upholstered and wooden furniture products in the United States.

    Market cap at $250.88M, most recent closing price at $34.32.

    MRQ net profit margin at 4.% vs. 3.17% y/y. MRQ sales/assets at 0.547 vs. 0.516 y/y. MRQ assets/equity at 1.262 vs. 1.292 y/y.

    Revenue grew by 12.38% during the most recent quarter ($110.53M vs. $98.35M y/y). Inventory grew by 7.06% during the same time period ($92.1M vs. $86.03M y/y). Inventory, as a percentage of current assets, decreased from 59.73% to 58.7% during the most recent quarter (comparing 3 months ending 2014-03-31 to 3 months ending 2013-03-31).

    2. Winnebago Industries Inc. (WGO, Earnings, Analysts, Financials): Manufactures motor homes, which are self-contained recreation vehicles used primarily in leisure travel and outdoor recreation activities.

    Market cap at $651.04M, most recent closing price at $23.90.

    MRQ net profit margin at 4.19% vs. 3.55% y/y. MRQ sales/assets at 0.74 vs. 0.606 y/y. MRQ assets/equity at 1.754 vs. 1.909 y/y.

    Revenue grew by 29.15% during the most recent quarter ($228.81M vs. $177.17M y/y). Inventory grew by 0.28% during the same time period ($124.29M vs. $123.94M y/y). Inventory, as a percentage of current assets, decreased from 63.73% to 54.63% during the most recent quarter (comparing 13 weeks ending 2014-03-01 to 13 weeks ending 2013-03-02).

    3. Cal-Maine Foods, Inc. (CALM, Earnings, Analysts, Financials): Engages in the production, grading, packaging, marketing, and distribution of shell eggs primarily in the southeastern, southwestern, mid-western, and mid-Atlantic regions of the United States.

    Market cap at $1.44B, most recent closing price at $59.63.

    MRQ net profit margin at 10.83% vs. 8.48% y/y. MRQ sales/assets at 0.496 vs. 0.478 y/y. MRQ assets/equity at 1.393 vs. 1.448 y/y.

    Revenue grew by 9.75% during the most recent quarter ($395.52M vs. $360.37M y/y). Inventory grew by 1.63% during the same time period ($149.3M vs. $146.9M y/y). Inventory, as a percentage of current assets, decreased from 34.93% to 33.94% during the most recent quarter (comparing 13 weeks ending 2014-03-01 to 13 weeks ending 2013-03-02).

    4. Deckers Outdoor Corp. (DECK, Earnings, Analysts, Financials): Engages in the design, production, marketing, and brand management of footwear and accessories for outdoor activities and everyday casual lifestyle use.

    Market cap at $2.73B, most recent closing price at $78.95. MRQ net profit margin at 19.14% vs. 15.89% y/y.

    MRQ sales/assets at 0.584 vs. 0.578 y/y. MRQ assets/equity at 1.418 vs. 1.446 y/y.

    Revenue grew by 19.24% during the most recent quarter ($736.05M vs. $617.26M y/y). Inventory grew by -13.12% during the same time period ($260.79M vs. $300.17M y/y). Inventory, as a percentage of current assets, decreased from 43.4% to 31.45% during the most recent quarter (comparing 3 months ending 2013-12-31 to 3 months ending 2012-12-31).

    5. Whirlpool Corp. (WHR, Earnings, Analysts, Financials): Engages in the manufacture and marketing of home appliances worldwide.

    Market cap at $11.88B, most recent closing price at $153.38.

    MRQ net profit margin at 3.56% vs. 2.55% y/y. MRQ sales/assets at 0.327 vs. 0.311 y/y. MRQ assets/equity at 3.157 vs. 3.614 y/y.

    Revenue grew by 6.31% during the most recent quarter ($5,090M vs. $4,788M y/y). Inventory grew by 2.29% during the same time period ($2,408M vs. $2,354M y/y). Inventory, as a percentage of current assets, decreased from 34.48% to 34.29% during the most recent quarter (comparing 3 months ending 2013-12-31 to 3 months ending 2012-12-31).

    (List compiled by Mary-Lynn Cesar. Accounting and DuPont data sourced from Google Finance. Quarterly sales data sourced from Zacks Investment Research. All other data sourced from Finviz.)

    Analyze These Ideas: Getting Started

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    ABOUT US

    © Kapitall, Inc. All rights reserved. Kapitall Wire is a division of Kapitall, Inc. Kapitall Generation, LLC is a wholly owned subsidiary of Kapitall, Inc.

    Kapitall Wire offers free cutting edge investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by Kapitall Inc., and its affiliate companies.

    Open a free account today get access to virtual cash portfolios, cutting-edge tools, stock market insights, and a live brokerage platform through our affiliated company, Kapitall Generation, LLC.

    Securities products and services are offered by Kapitall Generation, LLC - a FINRA/SIPC member.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: FLXS, WGO, CALM, DECK, WHR
    May 07 12:36 PM | Link | Comment!
  • Short Sellers Are Covering Their Losses On These 5 Blue Chip Stocks

    The Dow Jones Index, the bellwether of America's most recognizable companies, surpassed its all-time high yesterday. The index climbed about a percent, rounding out a nearly 8% gain since declining to a year low in early February.

    Over the same period, however, the Nasdaq composite, which is heavy on technology and growth stocks, fell off 4.5%.

    Analysts are basically saying that investors' risk appetite has receded, making the stable blue chips that trade on the Dow all the more attractive. Even 2013's Dow laggards IBM (IBM) and Caterpillar (CAT) made major gains.

    The main reason might be that Dow stocks were just super cheap. The index trades at around 15 times earnings; the Nasdaq Composite 100 still trades at around 34.

    Yesterday, however, the Nasdaq recovered some, gaining about 0.31% by market close. Despite weak GDP growth numbers that were released on Wednesday, confidence in the economy seems to be on the rise, and the Fed has announced that it's proceeding with its tapering program.

    One sign of growing demand for blue chips is the spike in short covering that's occurred over the last quarter. Short selling is when you borrow shares from an intermediary, sell them, buy them back at a lower price, and then return them to the original buyer.

    When we screened a universe of about 150 American large-cap stocks trading below a P/E ratio of 20, we saw 5 companies experiencing spikes of short covering. That means investors who bet against the stock are accepting their losses and admitting they were wrong. When lots of people cover shares at the same time, it creates a short squeeze.

    That happens when people have trouble finding available shares to cover their losses, driving up demand even more. We built a list of the 5 blue chips experiencing short covering.

    1. Brookfield Properties Corporation (BPO, Earnings, Analysts, Financials): A publicly owned real estate investment firm. Market cap at $10.04B, most recent closing price at $19.89.

    Shares shorted have decreased from 9.35M to 2.19M over the last month, a decrease which represents about 1.44% of the company's float of 496.40M shares. Days to cover ratio at 0.99 days.

    2. Caterpillar Inc. (CAT, Earnings, Analysts, Financials): Manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. Market cap at $65.93B, most recent closing price at $105.07.

    Shares shorted have decreased from 34.63M to 24.94M over the last month, a decrease which represents about 1.52% of the company's float of 636.04M shares. Days to cover ratio at 4.3 days.

    3. Corning Inc. (GLW, Earnings, Analysts, Financials): Corning Incorporated manufactures and processes specialty glass and ceramics products worldwide. Market cap at $29.08B, most recent closing price at $21.06.

    Shares shorted have decreased from 76.66M to 57.82M over the last month, a decrease which represents about 1.36% of the company's float of 1.39B shares. Days to cover ratio at 4.75 days.

    4. HollyFrontier Corporation (HFC, Earnings, Analysts, Financials): Operates as an independent petroleum refiner and marketer in the United States. Market cap at $10.46B, most recent closing price at $52.30.

    Shares shorted have decreased from 16.21M to 11.62M over the last month, a decrease which represents about 2.33% of the company's float of 196.65M shares. Days to cover ratio at 4.27 days.

    5. Tyson Foods Inc. (TSN, Earnings, Analysts, Financials): Engages in the production, distribution, and marketing of chicken, beef, pork, and prepared food products, as well as related allied products worldwide. Market cap at $14.28B, most recent closing price at $42.41.

    Shares shorted have decreased from 19.07M to 13.53M over the last month, a decrease which represents about 2.09% of the company's float of 264.88M shares. Days to cover ratio at 3.69 days.

    (List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research, all other data sourced from Finviz.)

    Analyze These Ideas: Getting Started

    Dig Deeper: Access Company Snapshots, Charts, Filings

    ABOUT US

    © Kapitall, Inc. All rights reserved. Kapitall Wire is a division of Kapitall, Inc. Kapitall Generation, LLC is a wholly owned subsidiary of Kapitall, Inc.

    Kapitall Wire offers free cutting edge investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by Kapitall Inc., and its affiliate companies.

    Open a free account today get access to virtual cash portfolios, cutting-edge tools, stock market insights, and a live brokerage platform through our affiliated company, Kapitall Generation, LLC.

    Securities products and services are offered by Kapitall Generation, LLC - a FINRA/SIPC member.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: CAT, IBM, BPO, GLW, HFC, TSN
    May 07 12:15 PM | Link | Comment!
  • Celebrate Cinco De Mayo With These Undervalued Mexican Stocks

    We decided to celebrate the holiday by seeking out Mexican stocks that look undervalued based on cash flows.

    Cinco de Mayo is not, as many Americans believe, the Mexican equivalent of America's 4th of July. Though today's margarita drinkers erroneously believe they will be celebrating Mexican independence, that day actually falls in mid-September.

    Instead, Cinco de Mayo commemorates the Battle of Puebla. In 1862 the Mexican President Benito Juárez halted payments on Mexico's foreign debt, prompting the French to invade at the city of Puebla. Despite winning the battle, Mexican independence wouldn't be realized for several more years; however, the moral victory prompted Juarez to declare a national holiday.

    Interestingly, it's still not a Federal holiday in Mexico, which means Cinco de Mayo is more of a celebration of Mexican culture for expats and foreigners.

    With that in mind, we decided to run a screen on Mexican stocks to see if any of the companies that trade on US exchanges looked undervalued.

    Read more by this Kapitallist on stocks from emerging economies.

    There's good reason to be excited about the Mexican economy anyway: falling commodity prices have stregthened Mexico's attractiveness relative to Latin American economies like Brazil, who profited heavily by selling raw goods to China. Mexico, on the other hand, had to rely on low taxes and partnerships with American businesses to make itself attractive to foreign investment.

    That strategy has started to pay off. Cheap labor and growing, stable suburbs have led to the rise of Mexican industrial parks that are attracting the likes of General Motors (GM), Honda (HMC), and American Airlines (AAL). Mexican manufacturing now accounts for a quarter of the country's exports.

    The Pacific Trade Alliance, which includes Mexico, Peru, Chile, and Columbia have a projected growth rate that's almost double the figures for the rest of the country.

    To build this list of stocks we looked at all the Mexican stocks that list on major American exchanges. We screened those 20 companies for companies that look undervalued based on levered-free cash flow to enterprise value (LFCF/EV), which is to say that they have lots of cash on hand relative to their size.

    That left us with two companies on our list.

    1. Gruma S.A.B. de CV (GMK, Earnings, Analysts, Financials): Engages in the production, marketing, distribution, and sale of tortillas, corn flour, wheat flour, and related products. Market cap at $3.92B, most recent closing price at $36.06.

    Levered free cash flow at $509.88M vs. enterprise value at $4.75B (implies a LFCF/EV ratio at 10.73%).

    2. Industrias Bachoco S.A.B. de C.V. (IBA, Earnings, Analysts, Financials): Operates as a poultry producer in Mexico. Market cap at $2.19B, most recent closing price at $43.70.

    Levered free cash flow at $360.10M vs. enterprise value at $1.76B (implies a LFCF/EV ratio at 20.46%).

    (List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research. LFCF/EV data sourced from Google Finance.)

    Analyze These Ideas: Getting Started

    Dig Deeper: Access Company Snapshots, Charts, Filings

    ABOUT US

    © Kapitall, Inc. All rights reserved. Kapitall Wire is a division of Kapitall, Inc. Kapitall Generation, LLC is a wholly owned subsidiary of Kapitall, Inc.

    Kapitall Wire offers free cutting edge investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by Kapitall Inc., and its affiliate companies.

    Open a free account today get access to virtual cash portfolios, cutting-edge tools, stock market insights, and a live brokerage platform through our affiliated company, Kapitall Generation, LLC.

    Securities products and services are offered by Kapitall Generation, LLC - a FINRA/SIPC member.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: GM, HMC, AAL, GMK, IBA
    May 07 11:46 AM | Link | Comment!
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