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  • Can These Winners Continue To Outperform? 0 comments
    Jan 25, 2014 4:07 PM | about stocks: UTMD, CHKE

    Last year was an exceptional period as far as stock market returns are considered. While stocks continued their bull run, valuations have become stretched in some cases. Going forward, there will be a lot of portfolio churning as sector leadership is changed. The key for investors would be to identify stocks with solid fundamentals and meaningful upside left. Investors can take a look at Utah Medical Products Inc. (NASDAQ: UTMD) and Cherokee Inc. (NASDAQ: CHKE) which fit this bill with positive performance on a number of metrics. Here is a closer look.

    Utah Medical Products Inc. produces disposable medical devices for hospital use. Although the company's earnings have faced stagnation this year, its margins are propelled by a lean balance sheet. The company boasts of an operating margin of 36.8 percent against industry average of 7.4 percent. Similarly, its net profit margin of 32 percent is also ahead of industry average. This is helped by a simple capital structure which involves only 15 percent debt. This allows a return of 18 percent on equity against industry average of 8.4 percent. The stock gained 61.8 percent in 2013, but continues to trade at a relatively attractive forward price earnings ratio of 18.4; not to mention a steady dividend stream with annual yield of 1.8 percent. Considering that 2014 will likely be a year of consolidation, Utah Medical Products is an excellent stock to own, although concerns regarding revenue growth are a real worry.

    California based apparel marketing company Cherokee Inc. owns a portfolio of lifestyle brands including the Cherokee, Sideout and Carole Little brands. With a net profit margin of 23 percent, the stock is clearly ahead of its competitors in the segment which top out at 13.8 percent. Its debt equity ratio of 0.83 is on the higher side, but not prohibitively high. The company's Achilles heel is the top line growth. With trailing 12 month revenue growth of 6.4 percent, it underperformed the industry which grew at 14 percent. However, the management has taken note of it and has undertaken expansion of the brand portfolio in new territories, including the launch of Cherokee adults in Target.com. The stock can be held for its annual dividend yield of 2.9 percent alone, but there is more to it. The board has recently approved a new stock repurchase program authorizing repurchase of up to 1 million shares. The stock trades at an attractive forward price earnings ratio of 16.4 and the share buyback program has potential to unlock value.

    Stocks: UTMD, CHKE
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