The Warmest March: 3 Companies Poised To Gain, 1 To Lose

by: Gutone

According to NOAA, March 2012 has just entered the record book as the warmest March in the United States since the official record started in 1895. Together with a warm winter, the climate change will bring all kinds of business opportunities for various companies. Most notably, the following three companies are going to gain big from a warm spring:

1. The Scotts Miracle-Gro Company (SMG)

Warm weather does two things: 1) plants will grow earlier and better, and 2) bugs will flourish. Scotts Miracle-Gro's products deal with everything related to such changes. Its line of lawn fertilizer, seeds will get sold earlier. Scotts Miracle-Gro has Roundup to get rid of weeds. As weed becomes more rampant with the warm spring, you will definitely need more of that. With all the bugs inside and outside enjoying a warm winter and spring, Scotts Miracle-Gro eliminates them with its Ortho brand products.

At the current valuation, Scotts Miracle-Gro has a market cap of $3.19 billion, an EV/EBITDA of 10.64, and a 2.3% yield. It is not an undervalued company. Investors should only consider short term holdings for possibly above market average returns.

2. Nike (NKE)

With better weather outside, people become much more active. They will buy more fitness related products. Nobody has better sports product lineup than Nike. After a warm winter which might have ruined winter sports products, a warm spring is definitely welcomed by sports apparel companies, including smaller players such as Columbia Sportswear (COLM) and Under Armour (UA).

Nike has a market cap of $50.74 billion, an EV/EBITDA of 14.29, and a 1.3% yield. As a strong consumer brand, its stock price is almost never very "cheap" from traditional value investing point of view. This is especially true after a long bullish rally over the past year. There is no great entry point for long term buy and hold. Nike is a possible short term play for active traders.

3. PF Chang's China Bistro (PFCB)

When weather is nice, people eat out a lot more. This would help traffic at all casual dining restaurants such as PF Chang's China Bistro, Darden Restaurants (DRI), and BJ's Restaurants (BJRI), etc.

I have written about Darden, PF Chang's and BJ's earlier, and my view has not changed. BJ's is overvalued and potentially a short selling candidate. Darden is a fairly valued stalwart which may not move much before it resolves the issues with Olive Garden.

PF Chang's has a market cap of $833.77 million, an EV/EBITDA of 5.97, and a handsome yield of 2.8%. In my opinion, it is both a potential takeover target and a stock that could benefit from a warm early spring.

One to lose: Netflix (NFLX)

From over $300 to $107, Netflix's stock price has taken a bad beating over the last year, but it may not have ended yet. When people engage more outdoor activities, they do not stay inside to watch TV as much. If they occasionally want to rent something to watch, they still have easy access to a Redbox (NASDAQ:CSTR) stand almost anywhere in the United States. Netflix, on the other hand, may see a higher customer churn rate when people don't stay inside. March is also the first month Netflix lost Starz's contract and now has a significantly smaller streaming library. As I calculated, Netflix is worth between $65-$95. If it cannot keep the current customer base, its price can go even lower than that range.

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

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