Money & Investing
Sometimes, "Boring Stocks" Are the Place to Be,
a Look at Autozone, Inc. and TreeHouse Foods, Inc.
Many investors like to invest in exciting stocks. They may want an issue in the high-tech field with a potentially dynamic break-through product. In some cases, they may go wandering into the world of wonder drugs and medical products to look for a hot stock. Many times, these ventures don't pan out.
However, on the other hand, there are those stocks that don't even lift an eyebrow of investor interest. They seem so humdrum that they get overlooked. Yet, quite a few of these stocks seem to push higher and higher, year after year, with their steady and modest earnings growth.
Many of these "wallflower stocks" are companies that provide an everyday need. Investors should not be so quick to dismiss these issues but instead give them a good look. The key is to find the ones with:
- Consistent earnings growth
- A steady up trend in the price of their stocks
- A product with repeat sales
One issue that fits the bill is Autozone, Inc. (AZO).
The Memphis-based firm, with annual revenues of $7 billion, operates 4,229 auto parts stores, most of them in the U.S. It also has 188 stores in Mexico.
AZO reported stronger-than-expected earnings for the fiscal third quarter that ended May 30. Net jumped 32 percent to 4.12 a share from 3.13 a year ago. Sales were up 10 percent to 1.8 billion dollars.
The 4.12 a share topped not only the consensus estimate on The Street of 3.59 a share but also the highest estimate of 3.80 a share. The stock rose sharply the day of the earnings report.
Research has shown that when a company can report quarterly profits that top the highest estimate on Wall Street and the stock responds in a positive way, the stock can move higher for several weeks. That is because analysts must adjust their view of the company and, in most cases, boost their annual estimates.
AZO's long-term chart shows the stock climbing from 25 in 2000 to 190. The stock drove through the bear market without losing much traction. It continues in an up trend.
Another "boring stock" working well is TreeHouse Foods, Inc. (THS), trading at 44.80 and making new highs. The stock went public in 2005 and traded around 28.
The stock has an extremely low beta of 0.39 versus 1.00 for the S&P 500 index. So, THS has a volatility of less than 50 percent compared with the stock market. Nevertheless, THS's stock is still pushing higher and outperforming many issues.
TreeHouse was founded in 2005 and has expanded via acquisitions. The company is a food manufacturer servicing primarily the retail grocery and food service distribution channels.
Its products include non-dairy powdered coffee creamers, private label soups, salad dressings and sauces, Mexican sauces, jams and pie fillings, pickles and related products, infant feeding products, aseptic sauces, refrigerated salad dressings and liquid non-dairy creamer.
TreeHouse makes private label products and sells them to retailers, such as supermarkets and mass merchandisers, for resale under the retailers' own labels. It is a growing industry. TreeHouse annual sales are running at 1.6 billion dollars. The 5-year growth rate in sales is at 16.8 percent.
This year, Wall Street is forecasting a 21 percent gain in Treehouse earnings to 2.71 a share from 2.23 a year ago.
Several other "boring stocks" recently became public and are showing a tendency to work higher. One of those is Dollar General Corp. (DG). It has annual sales of 11.8 billion dollars and operates 8,877 stores that sell a variety of merchandise from home products to apparel.
The company is 85 percent owned by a limited partnership controlled by Kohlberg Kravis Roberts & Co. L.P.
Dollar General's stock began trading on the Big Board at approximately 22 back in November of 2009. It has since advanced to 30 and is making new highs. Dollar General is expected to rack up a 27 percent gain in earnings for the fiscal year ending January 2011. Analysts look for net of 1.62 a share, up from 1.28 in fiscal 2010.
Yet another of those "boring stocks" that could do well and, perhaps, appeal to savvy women investors is Ulta Salon Cosmetics and Fragrances, Inc. (ULTA). The company, with annual sales of 1.2 billion dollars, provides salon services and a wide range of haircare and beauty products for both women and men. It has 346 stores in 38 states.
The stock went public in late 2007 and traded as high as 35. But, it was pulled down by the bear market, touching a low near 5 in early 2009. However, ULTA has since rallied strongly and is at 23 (as of this writing).
The company is expected to rack up a 39 percent increase in earnings for the fiscal year ending January 30, 2011. Net is projected to come in at 92 cents a share, up from 66 cents a year ago. Sales growth the past 5 years is running at 20 percent.Mr. Fasciocco is the publisher of Ticker Tape Digest at www.tickertapedigest.com. He is a contributing writer for several publications. Mr. Fasciocco can be reached at leo@tickertapedigest.com.
