Top Consumer Stock Picks and Pans from Jefferies (JEF, FIVE, PIR, ANFI, CMG, HAIN, DECK)
Jan 15th 2013 8:35AM
With ICR XChange, one of the world's largest consumer symposiums, coming up this week in Miami, we thought it would be a good time to take a look at consumer stocks. There is a growing sense on Wall St. that recent tax hikes on many Americans for Social Security contributions might have a debilitating effect on consumer spending. If that is the case, we wanted to find which stocks may be able to sidestep the drop in spending.
The team at Jefferies Group Inc. (NYSE: JEF) believes retail sales growth will be choppy in 2013 but should still manage a 2% to 3% gain. One of their leading indicators is the banks' willingness to lend index, which they view as a variable but sideways trend. While they acknowledge that slow job growth and tax increases will weigh on consumers, they also feel low mortgage rates and a friendly Fed should help keep some support under sales. Since there are multiple categories within the consumer stock sector we decided to present the stocks in each category that are the top Jefferies picks.
Broadline/Hardline Retail: The top small cap pick here is small-box retailer Five Below Inc. (NASDAQ: FIVE). Focusing on teen and preteen costumers, this recent IPO is trading today at $31.14. The consensus street target is $36.63. Jeffries also rates specialty home retailer Pier 1 Imports Inc. (NYSE: PIR) as a Buy. Trading at $20.85, a wave of new and returning home buyers could be a positive for Pier 1, which analysts have placed a $23.80 target on.
Packaged Food: In an industry where margins are often very tight, the top pick is Amira Natural Foods Ltd. (NYSE: ANFI). This company based in Dubai is also a recent IPO. However, this name got crushed. Priced at $10 a share back in October, Amira Nature Foods focuses on processing, distributing and marketing packaged specialty rice and other food products in India, the Asia Pacific, North America, Europe, the Middle East and Africa. Trading today at $6.79 and at a very reasonable 5.5 times earnings, this seems like an excellent entry point for a stock with a street target of $12.
Restaurants: Here, Jefferies takes a very cautious view on Chipotle Mexican Grill Inc. (NYSE: CMG). Long a favorite of the short sellers the fear is that comp trends, margins and earnings expectations will all come in below street views. Even though today's level of $295.97 is way below the 52-week high of $442.40, it recently traded as low as $235. A complete miss at earnings could send it back there.
Retailing, Food and Drug Chains: The top name here is actually not a food or drug store chain, but the Hain Celestial Group Inc. (NASDAQ: HAIN). Hain Celestial, together with its subsidiaries, manufactures, markets, distributes and sells natural and organic products in approximately 50mcountries worldwide. With a growing consumer desire and willingness to pay for organic products, this may be a solid choice. Trading today at $52.53, with a street consensus of $69.29, investors could see a 30% gain.
Speciality Retail: In this final group. outdoor footwear and accessory manufacturer Deckers Outdoor Corp. (NASDAQ: DECK) is the top pick. This is another name short sellers went after and got destroyed in the process. The UGG brand has been a huge success and continues with strong sales trends. Trading at $38.151, below a street target of $42.69, Deckers may still hold solid gains for investors.
Even though retail was one of last year's top performing sectors, a slow but surely improving economy may be just enough to squeeze out more solid gains in 2013.
Filed under: 24/7 Wall St. Wire, Analyst Calls, Consumer Goods Tagged: ANFI, CMG, DECK, FIVE, HAIN, JEF, PIR