From Standard & Poor's Equity Research
In the summer months, consumers typically buy hot-weather fare and gear as they take on housing projects, hit the highway for the mountains or the shore, and entertain outdoors. So S&P put together a short list of plays on summer -- companies that sell goods and services popular in the summer months. S&P equity analysts rank all these stocks high because they expect their prices to rise and their overall returns to outperform the S&P 500-stock index by a wide margin over the next 12 months.
During summertime shopping ventures, families will seek products that dress the house, yard, or pool. Top picks from S&P include Home Depot (HD) and Wal-Mart (WMT), which are both ranked strong buy. Home Depot adjusts to the hot-weather season with a new assortment of lawn furniture and gardening supplies. According to S&P equity analyst Michael Souers, the company should expand its sales 15% to 16%, while growing earnings by about the same amount for the 2007 fiscal year ending in January. The stock's dividend recently yielded 1.6%.
Wal-Mart carries almost everything shoppers may need for summer sizzle, from frozen treats to footballs, from bathing suits to sunscreen. S&P equity analyst Joseph Agnese believes the merchanting giant will grow its sales by 10% for the fiscal year ending January, 2007, while earnings are projected to jump 11%. He strongly recommends purchase of Wal-Mart shares, which have a dividend yield of 1.4%.
ROAD TO PROFITS. At the mall, apparel retailers Abercrombie & Fitch (ANF) and Chico's (CHS) carry bathing suits and casual resort wear in the season's favorite styles. Abercrombie & Fitch, known for its youthful fashion and marketing, has been testing and rolling out new retail concepts catering to an older demographic. S&P equity analyst Marie Driscoll has a strong buy on the shares, which yield 1.3%.
Driscoll's other top pick is Chico's, a chain catering to women 35 and older. She expects Chico's to grow earnings at 26% over the next five years. She has a strong-buy opinion, although she believes the shares trade at a slight premium to her projected growth rate.
Despite high prices at the gas pump, summer is sure to be the busiest driving season again, which generally benefits chain restaurants located near America's highways and byways. While a family meal at Red Robin Gourmet Burgers (RRGB) may cost consumers a little more this summer than last year due to price hikes, S&P equity analyst William Mack believes the pricier menu will complement higher guest counts and lead to earnings growth. "We expect profits at the store level as a percentage of sales to stay close to the 21% to 22% range that management aims to achieve," he says, adding that he expects a 13% increase in per-share earnings for 2006. He has a strong-buy opinion on the stock.
UTILITIES PICKS.With the kids home from school, the typical family may need to stock up on snacks this summer. S&P equity analyst Richard Joy has a strong-buy recommendation on Hershey (HSY), in part because he believes that the leading U.S. producer of chocolate will experience "strong organic sales growth and expanding margins." The shares yield 1.8%. Confectioner Wrigley (WWY) is another option. Wrigley's shares, which are also ranked strong buy, yield 2.2%.
This list of stocks also includes two highly favored companies contributing to keeping consumers comfortable and products refrigerated. One of S&P's favored picks in the utilities sector is AES (AES), a producer and distributor of electricity that's in big summertime demand to run air conditioners. S&P equity analyst Yogeesh Wagle pegs AES' projected five-year compound earnings growth within a range of 13% to 23%.
Wagle also likes Duke Energy (DUK), an electricity provider that also transports and markets natural gas. The shares yield a whopping 4.5%.