Are Stronger Sales In Store For These U.S. Consumer Goods Stocks?

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By Mary-Lynn Cesar for Kapitall

Consumer spending reached a four-year-high in March. Will these US consumer goods stocks benefit from an increase in household purchases?

Consumer spending rose 0.9%, or $107.2 billion, in March, according to the latest figures from the Commerce Department. Bloomberg reports the increase was the biggest recorded since August 2009, and that the gain beat the average estimate of 0.6% growth. The uptick in spending bodes well for the second quarter and supports the Federal Reserve's claim that the US economy was on the rebound after a dismal first quarter of negligible growth.

Household purchases are the primary driver of the economy, accounting for nearly 70% of the US's GDP. They include nondurable goods such as food and clothing, longer-lasting durable goods like cars and computers, and services, which covers everything from banking to travel lodging.

Durable goods experienced the biggest gain in spending in March, rising 2.7%. Goods spending jumped 1.4%, and services increased 0.7%.

Investing Ideas

Today's consumer spending report inspired us to look for investment opportunities in the consumer goods sector. We began with a universe comprised of US consumer goods stocks (durable and non-durable), which we then screened for encouraging inventory trends given March's increase in spending.

Specifically, we looked for stocks that saw two things: faster growth in quarterly revenue than inventory over the past year, and a decrease in inventory as a percentage of current assets. Companies that satisfy these criteria are efficient when it comes to selling their goods and services, and also offer products that are in great demand.

We ran the remaining stocks through the DuPont analysis of ROE in order to get a better sense of their profitability. The DuPont equation uses a company's profit margin, total asset turnover, and financial leverage from its most recent quarter (MRQ) to analyze its return on equity.

When a company's profitability orginates from an increase in net profit margin and/or asset turnover, the company's source of growth is considered positive. On the other hand, an increase in leverage ratio is viewed as a negative source.

We were left with five stocks on our list.

Click on the image to view data over time.

Do you think these US consumer goods stocks will see stronger sales in the coming months? Use this list as a starting point for your own analysis.

1. Flexsteel Industries Inc. (FLXS, Earnings, Analysts, Financials): Together with its subsidiaries, manufactures, imports, and markets residential and commercial upholstered and wooden furniture products in the United States.

Market cap at $250.88M, most recent closing price at $34.32.

MRQ net profit margin at 4.% vs. 3.17% y/y. MRQ sales/assets at 0.547 vs. 0.516 y/y. MRQ assets/equity at 1.262 vs. 1.292 y/y.

Revenue grew by 12.38% during the most recent quarter ($110.53M vs. $98.35M y/y). Inventory grew by 7.06% during the same time period ($92.1M vs. $86.03M y/y). Inventory, as a percentage of current assets, decreased from 59.73% to 58.7% during the most recent quarter (comparing 3 months ending 2014-03-31 to 3 months ending 2013-03-31).

2. Winnebago Industries Inc. (WGO, Earnings, Analysts, Financials): Manufactures motor homes, which are self-contained recreation vehicles used primarily in leisure travel and outdoor recreation activities.

Market cap at $651.04M, most recent closing price at $23.90.

MRQ net profit margin at 4.19% vs. 3.55% y/y. MRQ sales/assets at 0.74 vs. 0.606 y/y. MRQ assets/equity at 1.754 vs. 1.909 y/y.

Revenue grew by 29.15% during the most recent quarter ($228.81M vs. $177.17M y/y). Inventory grew by 0.28% during the same time period ($124.29M vs. $123.94M y/y). Inventory, as a percentage of current assets, decreased from 63.73% to 54.63% during the most recent quarter (comparing 13 weeks ending 2014-03-01 to 13 weeks ending 2013-03-02).

3. Cal-Maine Foods, Inc. (CALM, Earnings, Analysts, Financials): Engages in the production, grading, packaging, marketing, and distribution of shell eggs primarily in the southeastern, southwestern, mid-western, and mid-Atlantic regions of the United States.

Market cap at $1.44B, most recent closing price at $59.63.

MRQ net profit margin at 10.83% vs. 8.48% y/y. MRQ sales/assets at 0.496 vs. 0.478 y/y. MRQ assets/equity at 1.393 vs. 1.448 y/y.

Revenue grew by 9.75% during the most recent quarter ($395.52M vs. $360.37M y/y). Inventory grew by 1.63% during the same time period ($149.3M vs. $146.9M y/y). Inventory, as a percentage of current assets, decreased from 34.93% to 33.94% during the most recent quarter (comparing 13 weeks ending 2014-03-01 to 13 weeks ending 2013-03-02).

4. Deckers Outdoor Corp. (DECK, Earnings, Analysts, Financials): Engages in the design, production, marketing, and brand management of footwear and accessories for outdoor activities and everyday casual lifestyle use.

Market cap at $2.73B, most recent closing price at $78.95. MRQ net profit margin at 19.14% vs. 15.89% y/y.

MRQ sales/assets at 0.584 vs. 0.578 y/y. MRQ assets/equity at 1.418 vs. 1.446 y/y.

Revenue grew by 19.24% during the most recent quarter ($736.05M vs. $617.26M y/y). Inventory grew by -13.12% during the same time period ($260.79M vs. $300.17M y/y). Inventory, as a percentage of current assets, decreased from 43.4% to 31.45% during the most recent quarter (comparing 3 months ending 2013-12-31 to 3 months ending 2012-12-31).

5. Whirlpool Corp. (WHR, Earnings, Analysts, Financials): Engages in the manufacture and marketing of home appliances worldwide.

Market cap at $11.88B, most recent closing price at $153.38.

MRQ net profit margin at 3.56% vs. 2.55% y/y. MRQ sales/assets at 0.327 vs. 0.311 y/y. MRQ assets/equity at 3.157 vs. 3.614 y/y.

Revenue grew by 6.31% during the most recent quarter ($5,090M vs. $4,788M y/y). Inventory grew by 2.29% during the same time period ($2,408M vs. $2,354M y/y). Inventory, as a percentage of current assets, decreased from 34.48% to 34.29% during the most recent quarter (comparing 3 months ending 2013-12-31 to 3 months ending 2012-12-31).

(List compiled by Mary-Lynn Cesar. Accounting and DuPont data sourced from Google Finance. Quarterly sales data sourced from Zacks Investment Research. All other data sourced from Finviz.)



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Economy , Stocks

Referenced Stocks: FLXS , WGO , CALM , DECK , WHR

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