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Stock Screen: Best & Worst Performing Industries - November 28, 2012
Among the many features found in each week’s Issue of Value Line’s Selection & Opinion is a list of the seven best and worst performing industries over the past six weeks. These rankings can be found on the inside back cover of Selection & Opinion. The roughly 1,700 stocks in the Value Line universe are currently divided among 100 industries. Notably, for the purposes of calculating these results, the performance of each stock is equally weighted to the others in its industry (i.e., irrespective of market capitalization).
The last few weeks have brought considerable upheaval in the rankings of the best performing industries. Overall, the recent six-week period was a bumpy road for the broader market, as reflected in the 2.5% decline in the Value Line Arithmetic Average. The name at the top of this week’s list is a familiar one. The Building Materials group has made numerous appearances among our top seven this fall, and its 6.2% advance between October 9th and November 19th was good for first prize. Investors, though, also appear to be seeking out new ideas as they look to ride out this rough patch. For instance, the Trucking (+4.0%) and Foreign Electronics (+2.3%) industries, which both appear on this week’s best-performing list, are only weeks removed from appearances in our bottom seven. Meanwhile, the Precious Metals group (-8.4%), one of the names in our top seven two weeks ago, can now be found near the bottom of our latest rankings.
We also note the presence of the Recreation industry (+3.8%) among our top seven. This group includes Hasbro (HAS) and Mattel (MAT), and with the holiday shopping season now in full swing, we think it fitting to take some time out for a closer look at the shares of these two toymakers. For the most part, both of these equities have been nice to shareholders of late, comfortably outperforming the broader market so far in 2012. Moreover, we think some investors will likely find these good-quality stocks worthy of a spot on their Christmas wish lists.
Mattel is the largest toymaker in the United States. Its portfolio includes a number of iconic brands, including Barbie and Hot Wheels. Sales have been edging ahead at a solid, but unspectacular, mid-single-digit clip over the past few years. Thanks to margin expansion, the improvement on the bottom line has been even more pronounced, with earnings likely to reach $2.55 a share this year, more than double the $1.05 earned in 2008 in the midst of the last recession. Too, the company entered the critical holiday shopping season in good shape. Mattel produced a top line increase of 4% for its September quarter, as growth across most markets—almost half of revenues are generated outside the U.S.— helped to overcome a 4% headwind from currency effects. Moreover, it continued to make progress toward its 2012 goal of $175 million in cost savings. In all, we look for sales and earnings to rise 6% and 9%, respectively, in the December quarter, followed by increases of 4% and 8% for 2013.
Mattel stock has been a rock-solid performer since the current bull market got under way in early 2009, and our Timeliness Ranking System pegs it to again outperform the market in the year ahead. This stock will likely appeal to more conservative investors. It carries an Above-Average rank for Safety and yields 3.4%, about 100 basis points above the Value Line median for dividend paying stocks. The downside here is long-term appreciation potential, which appears limited, particularly if, as we suspect, further expansion of operating margins proves to be a challenge in the 3 to 5 years ahead.
Meanwhile, Hasbro, Inc. is about two-thirds the size of Mattel on a revenue basis, but also owns its share of well-known brands, including G.I. Joe, Transformers, Nerf, and Tonka. The company has had a tougher time of it lately than its larger rival, as earnings have essentially flatlined since 2010. It should finish 2012 off in solid fashion, however, with share net likely to climb roughly 20% in the December quarter. Moreover, we are fairly optimistic about the toymaker’s long-term prospects, particularly its overseas business (roughly half of revenues), which should help to drive annual earnings growth in the high-single digits through 2015-2017.
As with Mattel, Hasbro stock will likely have the most appeal with more conservative investors. It carries an Above-Average rank for Safety and its yield of 3.8% is about 40 basis points higher than Mattel’s. HAS stock hasn’t been quite as popular with the market in recent years as that of its larger rival, but it does trade at a more modest valuation, which leaves room for respectable, price appreciation on a risk-adjusted basis over the next 3 to 5 years.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.