In this series of articles, I will be taking a look at various industry sectors and selecting what I believe will be outperforming stocks for 2015. In Part 1, I reviewed 47 stocks within the Aerospace and Defense industry sector. For part 34, in determining my favorite stocks in this sector for 2015, I will review the following Internet & Catalog Retail stocks:
- 1-800-Flowers (NASDAQ:FLWS)
- Amazon (NASDAQ:AMZN)
- Blue Nile (NASDAQ:NILE)
- Expedia (NASDAQ:EXPE)
- FTD Companies (NASDAQ:FTD)
- Gaiam (NASDAQ:GAIA)
- HSN (HSNI)
- Lands' End (NASDAQ:LE)
- Liberty Interactive (QVCA)
- MakeMyTrip (NASDAQ:MMYT)
- Netflix (NASDAQ:NFLX)
- NutriSystem (NASDAQ:NTRI)
- Orbitz Worldwide (NYSE:OWW)
- Overstock.com (NASDAQ:OSTK)
- PetMed Express (NASDAQ:PETS)
- Priceline Group (PCLN)
- Shutterfly (NASDAQ:SFLY)
- TripAdvisor (NASDAQ:TRIP)
- Zulily (NASDAQ:ZU)
The first step I took to narrow down the list of possible options was to look at the earnings over the past five years of these stocks within the industry sector. I removed the following stocks from further review because of their negative or flat (less than 3%) earnings growth over the past five years:
- Blue Nile
- FTD Companies
- Lands' End
- Orbitz Worldwide
- PetMed Express
I then took the list of remaining stocks and checked the revenue growth of each over the past two years. I am removing any stocks that had flat (less than 3%) growth or saw a decline in revenue over the past two years. No remaining stocks met this criteria.
My next move was to examine the trailing PEG ratio of each of the remaining stocks. I removed any stock that had a PEG ratio over 2 to focus more specifically on fairly valued/undervalued stocks. These stocks included:
The next set of data I reviewed was the Fundamental and Value Scores for each of the ten remaining stocks. These scores are calculated by YCharts and I have found them to be very useful when researching investment options. More details on each of the scores can be found here and here.
|Fundamental Score||Value Score|
To determine the best stocks for 2015, I'm only taking into consideration stocks that have combined values of 15 or higher across both fundamental and value scores. Doing this left me with the following remaining stocks:
My next step was to look at the book value of each company and to remove any stock that has seen a decrease in its book value over the past five years. However, none of the remaining stocks saw a decline in book value during this time period.
My next step was to look closer at each stock remaining that passed all previous criteria and determine whether or not there were any reasons to eliminate them as great stock candidates for 2015. In doing so, I reviewed the financials of each company, the most recent quarterly report transcripts, and searched for any news items that warranted concern.
For its last quarter, the company reported a 106% increase in revenue and 207% increase in earnings per share compared to the same period last year.
While the acquisition of Harry & David to give a major boost to these results, organic growth was seen throughout each of the company's three business segments.
While I believe 1-800-Flowers is going to have a successful future, I don't believe the stock is going to see significant price appreciation throughout the remainder of the year because of the following two reasons:
- The stock is already up 35% year to date
- The company issued earnings guidance that is lower than recent results; which in my opinion, does not warrant the large recent increase in its stock price.
In its last quarter, the company posted a 10% increase in revenue and a 10% increase in earnings per share compared to the same period last year.
HSN appears to see continued growth moving forward as its digital and mobile sales have grown significantly (12% and 40% this quarter) and are making up a larger portion of the company's overall revenue.
I believe the short term price drop that has occurred this month (down about 5%) has presented a nice opportunity, as I fully expect HSN to see continued respectable growth in the coming quarters, that should keep the stock price moving up.
In its last quarter, the company posted a 24% increase in revenue and an increase in earnings per share from $0.72 to $0.77 compared to the same period last year.
With strong growth in subscribers and viewing times, I believe there is still room for this stock to move higher.
I'll be completely honest here, Netflix isn't a stock for me because of its extremely high valuation. I feel the same way about Amazon and other similarly priced stocks that appear extremely overvalued based on normal PE ratios.
That being said, these stocks seem to move on momentum more than anything else, and I believe that Netflix still has a lot of momentum in its favor. Several of its new shows (Bloodline, Daredevil, etc.) have received plenty of praise and with an expected stock split on the horizon, I feel that Netflix has a good chance of further positive moves in its price throughout the remainder of the year.
With its latest quarter, the company posted a 52% increase in revenue and an increase in earnings per share from $0.10 to $0.11 compared to the same period last year.
Like Netflix, Zulily has an extremely high valuation when looking at its PE ratio (currently over 130x). But unlike Netflix, it doesn't have momentum, in fact it has the opposite, with its stock price down nearly 70% over the past year. With the company issuing lower guidance for 2015, I don't see any reason to expect this stock to perform very well. I do think the stock is at or near its bottom and could possibly be a long term play, but it is not a stock I would look to for significant price appreciation this year.
I feel that HSN and Netflix are the two stocks in this sector with the highest probability of seeing significant price appreciation throughout this year. While both stocks definitely have risk associated with them (especially Netflix with its high valuation), I believe both companies have strong strategies in place that will deliver both short term and long term growth along with higher stock prices.
For part thirty five of this series, I will be reviewing the Internet Software & Services industry sector. As always, I suggest individual investors perform their own research before making any investment decisions.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.