The fact that 151,000 jobs were created in October is
impressive. The fact that August and September jobs numbers were
upwardly revised by a collective 110,000 was even more impressive,
as it underscores that things were not quite so bleak as had been
feared a few months ago.
Could we now be on the cusp of a robust and sustained upturn in
jobs? It's too soon to say. Employment numbers for November and
December are hard to handicap, especially since most major
companies will hold off on any significant changes in hiring until
after we are done with 2010.
Looking into next year, a real case can be made for an improving
job picture. Corporations are now flush with cash after a string of
highly profitable quarters, existing workers are being pressed to
shoulder an unsustainably heavyload , and companies are less likely
to fret that we're headed back toward the dreaded "double-dip"
All signs point to "help wanted" signs popping up with more
frequency next year. My colleague Nathan Slaughter has taken a more
in-depth look at the employment picture, and has a pair of
intriguing staffing stocks he's getting behind. [
Read Nathan's article here
You also can't forget the retail angle. As employment picks up, new
hires will begin to have more cash to spend, which should help
retail stocks. Here are three companies that would clearly
Best Buy (
Shares of this electronics retailer have rebounded roughly +30%
since I wrote about it
back in mid-September
, but I see another similar-sized move coming this winter, pushing
shares from a current $45 closer to the $60 mark.
When I looked at Best Buy in September, I focused on the catalysts
for the upcoming holiday shopping season. Yet as the calendar flips
to 2011, the investment thesis shifts from an impressive product
assortment this year to higher consumer spending next year. Let's
face it: many of us splurged on consumer electronics a few years
ago, but have had to make do with what we have the past two years.
A $1,000 spending spree at places like Best Buy was replaced by a
$100 DVD player here, a $200 camera there. But an emboldened
consumer that is less worried about losing their job in 2011 will
have reason to treat themselves or their loved ones. And to my
mind, few retailers can excite a newly-enthused consumer as a place
like Best Buy, truly a toy store for adults.
Analysts have started to raise their forecasts for Best Buy, and
now think the retailer will boost sales +5% in the next
(which ends February, 2012) and that per share profits will
approach $4. Yet that growth rate really just reflects the
company's international expansion plans, coupled with a very modest
expansion in its domestic store base and minimal same-store sales
growth. Yet that last factor is the wildcard. If consumers are
feeling more emboldened, then same-store sales could easily rise at
a +5% pace, pushing total company sales +10% higher, and
closer to $4.50. Shares trade for about 10 times that admittedly
bullish view, but that's far too cheap a multiple for a retailer
with such a tremendous track record. Move that multiple up to 13,
and shares would rise +30%.
Even in a lousy economic environment, this maker of recreational
vehicles is seeing signs of a solid rebound. The company has blown
past estimates for each of the last three quarters and is on track
to boost sales +25% in fiscal (August) 2011. Then again, projected
sales of $560 million are a far cry from $1 billion in revenue seen
in 2004 and 2005.
Per share profits are unlikely to top $0.50 next year, but as
investors start to think about the impact of rebounding consumer
sentiment, they'd do well to remember that Winnebago earned more
than $4 a share when times were good. The stock rallied to $17
earlier this year but has since pulled back to around $11. Shares
look like quite the bargain now -- if you believe the consumer will
start to stir back to life in 2011.
Citi Trends (Nasdaq: CTRN)
Shares of this retailer, which targets lower-income inner city
consumers, has seen its stock fall roughly -45% in the last six
months as rising unemployment has been most deeply felt in this
target demographic. The company badly lagged profit forecasts for
the quarter ended in August and the current quarter, which ends in
a few weeks, is likely to be similarly weak.
Yet those trends are obscuring a broader expansion plan that is
increasing the company's footprint in major markets. That's
why analysts still think sales and profits will rise around +15%
both this year and next. That growth rate is lower than what many
had expected six months ago, when this upstart retailer was seen to
be capable of +20% to +25% growth. Blame it on the tough
. If employment trends continue to improve, then sentiment may turn
positive again for Citi Trends.
A word of caution: the U.S. government may rein in the current
extension of unemployment benefits, which would have a noticeable
effect on Citi Trends' customer base, so shares may stutter the
next few months, before setting the stage for a rebound in 2011. I
like this name as a long-term holding, and investors should be
ready to pounce if and when shares fall into the upper teens.
Action to Take -->
All three of these companies have very strong reputations among
their customer bases, yet all also sell discretionary wares, so
that great reputation has been of no help while consumers are
insecure. An emboldened consumer would flock back to brands they
trust, such as Best Buy, Winnebago, and Citi Trends.
Shares of Best Buy have moderate upside, with ample downside
protection in the $40 range, while Winnebago and Citi Trends may
take longer to be appreciate, but they also sport more upside.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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