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Marc Lichtenfeld
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Marc is a frequent contributor to Investment U and also The Oxford Club’s Income Specialist and Editor of The Oxford Income Letter. He is the author of the best seller "Get Rich with Dividends". His investment career started out at the trading desk of Carlin Equities in San Francisco,... More
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  • Three Companies For the Recovery 0 comments
    Feb 15, 2010 4:51 PM | about stocks: CNTY, AAL, ALGT, AAPL, TLB, CWTR, SBUX, GME, ODP, OMX, SPLS

    The latest government data showed that the U.S. economy expanded strongly during the fourth quarter of 2009, galloping along at an annualized 5.7% GDP growth rate.

    Now admittedly, numbers like this get revised more often than a five-year-old’s alibi when questioned about a broken vase. But given that GDP contracted by 5.4% in the fourth quarter of 2008, that’s quite a comeback.

    Those with their glasses half-empty are skeptical of the economy’s apparent resurgence. They point to the restocking of inventories as the major catalyst for the reported growth. Additionally, there are still millions who are unemployed, but can’t find work.

    Still, it’s hard to argue that there aren’t some signs of life in the economy. Last weekend, I saw three areas that were bustling with activity. Let’s take a look at them, plus a few stocks in those industries that are in the best shape to flourish during a recovery…

    Gamble on This Company’s Stock… Not In Its Casinos

    My weekend started with a trip to a hotel and casino in California. It was only Friday afternoon, but I was surprised to find the casino so busy. The slots and tables were both enjoying plenty of activity.

    The heavy traffic continued into the evening, with the casino floor so packed that it was hard to get from one end to the other.

    Sadly, this scene isn’t replicated at the big casinos in Las Vegas at the moment. Many are loaded with debt and the city is having a tough time attracting visitors.

    Instead, consider Century Casinos (Nasdaq: CNTY). It operates casinos in Colorado, Canada, South Africa, the Czech Republic and other locations.

    • It’s a microcap stock, trading at just seven times its operating cash flow.
    • The company is expected to turn a profit of $0.08 per share in 2010 after losing money in 2009.
    • The company has $1.28 per share in cash (before a $9.5 million acquisition this quarter), yet trades around $2.50.

    The share price is down 79% from its two-year high, so if you’re comfortable with tiny stocks that don’t have a lot of volume, you might have better odds with CNTY shares than you would with any of their table games.

    Who Says All Airlines Are Bad?

    Over the course of three days, I took five flights. That’s enough for anyone at the best of times, but it was made worse by the eight hours I spent waiting at LAX and the four hours in Charlotte. It wasn’t a holiday weekend, but the airports were mobbed and every flight seemed full.

    There were no seats available on my US Airways (NYSE: LCC) flights, but if their customer service doesn’t improve, that won’t be the case for long. It was among the worst treatment I’ve ever received, particularly at LAX.

    One airline that I’m much more positive about is Allegiant Travel Company (Nasdaq:ALGT). It’s a budget regional airline that boasts some of the lowest non-fuel costs in the industry, due to using older planes and operating shorter routes. It has little competition (if any) on some of its routes, which include Greenville, SC to Orlando, FL, Grand Rapids, MI to Myrtle Beach, SC and Redmond, OR to Phoenix, AZ.

    Among the highlights…

    • The airline’s traffic has risen faster than its capacity. January traffic jumped by 21.6%, while capacity rose 19.9%.
    • In January 2009, a $25 million re-purchase was approved. Over the past year, the company has purchased $24.6 million of its own shares. And management just increased its stock buyback to another $25 million.
    • Over the past four quarters, the company generated approximately $155 million in cash flow from operations, giving it a price to cash flow ratio of less than seven, a P/E below 14 and a forward P/E of just 12.
    • Unlike many of its peers, ALGT has plenty of cash and not much debt. If the economy continues to improve, look for ALGT’s business and its shares to take off.

    This Retailer Stands Out In the Consumer Crowd

    Once I arrived back home, my first stop was the Apple (Nasdaq: AAPL) store to get my computer fixed. Despite a ton of people in the place, the reps were efficient, interested in solving problems and effective.

    While I waited for my computer, I did some “channel checks” (analyst-speak for “walking into a store”) at other retailers. I was surprised at how many people were in the mall, given that it was just a few hours before the Super Bowl.

    Jewelry stores were empty, as were many of the women’s clothing stores like Talbot’s (NYSE:TLB) and Coldwater Creek (Nasdaq: CWTR). Aside from Apple, stores with heavy crowds included Starbucks (Nasdaq: SBUX) and Gamestop (NYSE: GME).

    While the nation’s retailers are all too keen to offer bargains, not many of their stocks represent such good value. However, one that is still inexpensive and should be right in the sweet spot of the economic recovery is Staples (Nasdaq: SPLS). It’s an unloved retailer that suffered as a result of the recession, but it does possess some decent upside…

    • The stock trades at just eight times cash flow, 0.7 times sales and a reasonable 17 times forward earnings (earnings will likely be higher than current estimates if business conditions improve).
    • Operating margins are higher than those of its competitors – Office Depot(NYSE: ODP) and OfficeMax (NYSE: OMX), which should mean that Staples will boast greater earnings power than its peers during an economic recovery.

    In addition, when the employment trend reverses and more people are working again, those employees will need office supplies. And if companies expand their facilities, that will call for furniture and other larger workplace items.

    Both operationally and in share price appreciation terms, Staples has fared better than its peers – and it should continue to be the leader in the space.

    Hoping your longs go up and your shorts go down,

    Marc Lichtenfeld



    Disclosure: None
    Stocks: CNTY, AAL, ALGT, AAPL, TLB, CWTR, SBUX, GME, ODP, OMX, SPLS
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