Upscale Names Turn Up in the Bargain Bin
If you’re looking for stock bargains, why not shop in style?
Some of the best brand names in a variety of businesses have been beaten down with the broad market during the summer turmoil--and not always for good reason.
In the accompanying chart, we identify seven reasonably priced stocks with brand-name franchises.
Our list was culled by screening the Bloomberg News database for premier brand-name companies whose shares are marked down 25% or more from their 52-week highs and that now trade at price-to-earnings ratios close to or below that of the blue-chip Standard & Poor’s 500-stock index.
More important, the companies all have below-average PEG ratios--that is, their stock P/E divided by their estimated annual earnings growth rates.
The PEG ratio is a measure used to compare a stock’s valuation with the company’s underlying profit growth outlook. If a PEG is less than 1.0, the company’s projected annual growth rate is higher than its projected P/E. If the PEG is above 1.0, the P/E is a higher number than the projected growth rate.
A lower PEG ratio could mean a stock is valued too cheaply by the market relative to growth potential.
The list is more or less split between financial companies and retailers.
American Express, Countrywide Credit and T. Rowe Price Associates are leaders in their segments of the financial services industry.
AmEx provides travel-related services, investment advice and charge cards. The company’s share of the U.S. credit and charge card market rose in the first half of 1998 as it continued to gain on the competition, industry newsletter Nilson Report said this week.
Calabasas-based Countrywide is one of the nation’s top mortgage loan firms. Its subsidiaries include a title insurance agency, a securities dealer, a loan-servicing brokerage and a mutual fund manager.
The company has flourished in a brisk housing market. That market can’t go on forever, but as a solid franchise Countrywide now is arguably fairly priced in any case: The stock is one of four on our list with a PEG ratio below 1.0, a cutoff sometimes used by strict value investors.
T. Rowe Price has become an elite name in the mutual fund business through its menu of peer-beating offerings such as its Small Cap Value and Blue Chip Growth portfolios.
Meanwhile, the retailers on the list are mostly upscale names with fairly wide consumer appeal.
Kenneth Cole Productions makes shoes and accessories known for their forward designs and solid craftsmanship.
Footwear fashion is a fickle business--remember Nike?--which might be one reason Cole sells for the lowest PEG ratio in our portfolio. Still, the company has recently introduced a broader clothing line.
Intimate Brands sells intimate apparel, a more polite--and expensive--way of saying undergarments, through its Victoria’s Secret shops and catalogs, and fragrances at its Bath & Body Works stores. Both lines lead their niches.
Some investors might not know the name Fortune Brands--formerly American Brands--but consumers are likely to know its leading products such as Moen faucets, Titleist and Cobra golf equipment, Master Lock padlocks and Jim Beam liquor. The company continues to tweak its mix, recently acquiring California winery Geyser Peak.
Finally, Borders Group, a 1995 spinoff from Kmart, operates more than 1,100 stores across the country under the Borders, Waldenbooks and Books Etc. names. Its superstores carry an average of 175,000 book and music titles, and it builds repeat business by staging in-store readings and concerts.
There’s no guarantee that the stocks on this list won’t get cheaper, of course. But if the market pullback has run its course, these could be the kind of high-quality names investors will be looking to snap up.
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Send Us Your Idea: If you’d like to share an original strategy or screening method for selecting winning stocks or mutual funds, write Market Savvy, Business Section, Los Angeles Times, Times Mirror Square, L.A., CA 90053, or e-mail josh.friedman@latimes.com.
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Brand Names on Sale
Bargain hunters looking for high-quality stocks at relatively low prices might want to consider the shares of these seven companies. Though these stocks have been beaten down significantly from their peaks, the companies represent some of the best brand names in their fields.
Company: Kenneth Cole
Ticker symbol: KCP
Wednesday close: $15.88
Decline from 52-Wk high: -40.6%
Projected earnings growth: 22.6%
Estimated P/E ratio*: 13.4
Estimated PEG ratio**: 0.6
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Company: Borders Group
Ticker symbol: BGP
Wednesday close: 27.88
Decline from 52-Wk high: -33.2
Projected earnings growth: 25.1
Estimated P/E ratio*: 22.8
Estimated PEG ratio**: 0.9
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Company: Fortune Brands
Ticker symbol: FO
Wednesday close: 28.75
Decline from 52-Wk high: -32.0
Projected earnings growth: 12.2
Estimated P/E ratio*: 17.1
Estimated PEG ratio**: 1.4
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Company: T. Rowe Price Assoc.
Ticker symbol: TROW
Wednesday close: 29.19
Decline from 52-Wk high: -31.9
Projected earnings growth: 18.4
Estimated P/E ratio*: 21.3
Estimated PEG ratio**: 1.2
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Company: Intimate Brands
Ticker symbol: IBI
Wednesday close: 21.63
Decline from 52-Wk high: -29.4
Projected earnings growth: 17.3
Estimated P/E ratio*: 14.1
Estimated PEG ratio**: 0.8
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Company: American Express
Ticker symbol: AXP
Wednesday close: 87.06
Decline from 52-Wk high: -26.6
Projected earnings growth: 13.9
Estimated P/E ratio*: 18.3
Estimated PEG ratio**: 1.3
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Company: Countrywide Credit
Ticker symbol: CCR
Wednesday close: 41.69
Decline from 52-Wk high: -25.9
Projected earnings growth: 13.9
Estimated P/E ratio*: 13.0
Estimated PEG ratio**: 0.9
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Company: S&P; 500
Ticker symbol:
Wednesday close: 1,045.48
Decline from 52-Wk high: -12.2
Projected earnings growth: 7.4
Estimated P/E ratio*: 20.9
Estimated PEG ratio**: 2.8
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*Estimated price-to-earnings ratio based on analysts’ forecasts for the next four quarters.
**Estimated price-to-earnings growth ratio, or the estimated P/E ratio divided by estimated annualized earnings growth rate for the next three to five years. The lower the PEG, the lower the valuation.
Source: Bloomberg News
