Contrary to 1950s television, Mother may actually know best, especially when it comes to stock-picking.
Former mutual fund manager and current Fidelity pitchman Peter Lynch, for example, often credits his wife, a mother of three, with investment ideas–such as Hanes and its L’eggs pantyhose, to name an oft-cited example–that have been big winners for his portfolio.
Maybe it’s woman’s intuition. Or maybe it’s because a lot of moms won’t dole out the money unless they understand what it is for–a necessary skill in an age of children with outstretched palms and a need to consume Beanie Babies.
In honor of Mother’s Day, here are a few stocks a mom could love.
First, there’s Salton Inc. (SFP on the New York Stock Exchange), a Mt. Prospect-based marketer of kitchen and home appliances, beauty and personal care products and clocks.
Over the past three years, Salton’s earnings have grown 143 percent, driven by acquisitions and new products. Salton has assembled a strong stable of brand names, including Juiceman, Breadman, Toastmaster and Farberware. Salton also recently moved to expand its offerings with the acquisition of a Sasaki Glass Company Ltd., which markets dinnerware and glassware through high-end retailers, including Bloomingdale’s, Saks Fifth Avenue and Barneys New York.
But it wasn’t fancy housewares that caught the eye of Oberweiss Investments, an Aurora-based newsletter publisher and investment management firm that owns the stock. Rather, says analyst Martin Yokosawa, the investment firm’s interest in Salton was piqued by the heavyweight champ of infomercial products: George Foreman’s Lean Mean Fat-Reducing Grilling Machine.
Oberweiss bought the stock last November at about $15.50, and has seen it grow to a recent $36. That’s still cheap compared to its growth rate, says Yokosawa, who estimates Salton will earn $2.30 per share in 1999 and $3 per share in 2000. He thinks the stock could reach $45, but is slightly cautious of the “faddishness” of products such as George’s grill and some of Salton’s other products.
Fads may come and go, but diamonds are forever. That’s why Mom might consider looking at Zale Corp. (NYSE: ZLC), which has regained its luster following a brush with bankruptcy in 1992. Over the past five years, the Irving, Texas-based jewelry retailer has posted compounded annual net earnings growth of more than 30 percent, while sales have grown to more than $1.3 billion.
The growth has come under the direction of chairman and CEO Robert J. Nicola, who arrived in 1994. Nicola has focused Zale on selling jewelry to Middle America, eschewing trendy pieces and costume jewelry in favor of real gold, diamonds and pearls. He’s revamped Zale’s advertising to build name recognition, and set an aggressive plan to open and acquire new stores. Over the next three years, Zale plans to open more than 200 new stores across the country. In February, the jewelry retailer also acquired People’s Jewellers Corp., a chain of 175 jewelry stores in Canada.
That expansion of the core Zale’s business and an outlet-store concept, along with growth at the high-end Bailey Banks & Biddle chain, could yield a 10 percent sales increase and 20 percent earnings growth for the next several years, said Janet Joseph Kloppenburg, a senior specialty retail analyst with BancBoston Robertson Stephens. Kloppenburg, who recently initiated coverage of Zale with a buy recommendation, estimates the stock could hit $49, a 33 percent gain, over the next six months.
One reason to be cautious: Insiders are selling, even as the stock goes up. Since last November, Zale executives have sold about 200,000 shares at prices ranging from $23 to $35, according to Vickers Research, which tracks insider trading.
Since many moms handle the family finances, they have learned to love a bargain. That’s the appeal behind 99 Cents Only Stores (NYSE: NDN), a 136-store specialty retailer that peddles household and other items at deep discounts. The California-based chain operates three retail store formats: the company’s namesake 99 Cents Only stores and its affiliates, Only Deals and Odd’s-N-End’s. 99 Cents Only stores are all located in Southern California, while the other stores are located in the Midwest, New York and Texas.
Mom would have to forgo about four dozen items at 99 Cents Only to buy the stock, which trades at about $48 per share. But even at that price, NDN stock may be marked down. Six analysts who follow the stock offer “buy” and “strong buy” recommendations for NDN, according to I/B/E/S, which tracks analyst estimates.
Analysts estimate NDN earnings per share will grow 22 percent versus last year to a consensus of $1.32 in 1999, based on increased same-store sales and at least 13 new stores openings during the year. This expansion is likely to include the first 99 Cents Only outside Southern California, beginning with a store in Las Vegas this year.
Bargains are great, but some moms don’t like to skimp when it comes to home decor. Therein lies the appeal behind Union, N.J.-based Bed Bath & Beyond Inc. (Nasdaq: BBBY), which operates 189 retail stores selling small appliances, linens, home furnishings and a host of other goods. The 35-state chain has reported seven straight years of improved net income and boasted sales of $1.4 billion for its fiscal year ended Feb. 27, 1999.
Driving the growth has been new store openings–45 in the last year alone–coupled with same-store sales growth. The company’s outlook for fiscal 2000 is more of the same, based on its aggressive expansion strategy and its ability to offer many of the leading housewares brands such as Laura Ashley, Calphalon and Cuisinart.
At an investment conference in mid-April, Bed Bath & Beyond executives said the retailer plans to open 50 superstores this fiscal year and an additional 60 to 65 the following year. The expansion strategy is all domestic and will include markets it currently serves as well as new areas.
Many moms spend a lot of time on their feet, and one thing that never goes in or out of style are sensible shoes. But can Mom make sense out of the market for shoe stocks? Despite the fact that we all continue to wear shoes, footwear stocks have slowed and their stock prices have declined dramatically over the last year. Poor economic conditions overseas, where a majority of shoes sold in the U.S. are made, fueled the decline. Nearly every company in the category has been affected.
One footwear company that may be worth a look, analysts say, is Maxwell Shoe Company Inc. (Nasdaq: MAXS), a Boston-based marketer of casual footwear under the Sam & Libby, Jones New York, Dockers and Mootsies Tootsies names. Maxwell reported record results in 1998, largely on the strength of its branded shoes, as well as growth in private-label shoes. It netted $13 million in earnings, $1.44 per share in 1998, up from $1.06 a year earlier.
Still, Maxwell stock hasn’t been something to kick up one’s heels about. The company’s Class A shares trade at about $8, or a meager 5.7 times trailing earnings per share, despite recommendation from five brokerage firm analysts–a lot for a small company stock like Maxwell. While analysts did recently trim estimates by a few pennies for 1999, the consensus remains a “buy” or better among three of the five who follow MAXS.
Finally, every mom needs a little luxury in her life. That said, she could probably appreciate the performance of Intimate Brands Inc. (NYSE: IBI), which runs Victoria’s Secret and Bath & Body Works. The $3.9 billion (sales) specialty retailer has continued to post strong results at its 1,900 stores and $800 million direct-mail business.
New store openings in the Victoria’s Secret segment and increased square footage in the B&BW stores will help drive growth in 1999, predicts analyst Stacy Pak of Prudential Securities. Pak likes Intimate Brands because it dominates its categories: Victoria’s Secret holds a 14 percent share of the $11 billion domestic lingerie market and B&BW leads the $25 billion personal care market.
The women’s retailer is also experimenting with new concepts, including White Barn Candle Company and Lingerie for Legs. With the latter, IBI hopes to do for hose what it did for nighties, bras and panties: turn a commodity item into a fashion product. E-commerce represents good upside potential for Victoria’s Secret, which has considerable expertise in distribution and fulfillment from its catalog operations, according to Pak.
Pak estimates sales will rise 10 percent to $4.3 billion and earnings per share will grow 20 percent in 1999. She has a 12-month price target of $58 for IBI stock, representing a 16 percent gain from a recent price of $50.
