CHICAGO, July 22, 2011 /PRNewswire/ -- Today, Zacks
Investment Ideas feature highlights Features: lululemon
athletica inc. (Nasdaq: LULU), Ancestry.com Inc.
(Nasdaq: ACOM), Ulta Salon Cosmetics & Fragrance, Inc.
(Nasdaq: ULTA), Coach (NYSE: COH) and Red Robin Gourmet
Burgers (Nasdaq: RRGB).
(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)
Buy What You Know Can Work
Legendary mutual fund manager Peter
Lynch made the "buy what you know" mantra popular in the
1980s and 1990s.
He told stories of his wife coming home from a shopping
expedition in the mid-1980s with bags in hand raving about a new
store called "The Limited" which he subsequently bought shares in
just as the stock took off.
In Love With Starbucks
Similarly, I have a friend who, in the early 1990s, starting
going to a coffee shop that had recently opened in Illinois called "Starbucks."
She used to go so often that her kids told her, "you should buy
the stock." She did and, well, it certainly paid for all those
coffee runs over the years.
Any of us can apply the "buy what you know" strategy to our own
investing portfolios.
It can be a fun way to invest because you actually KNOW
something about the product and, in some cases, may passionately
believe in it. (Apple anyone?)
Is It Really That Easy?
Peter Lynch made "buy what you
know" seem easy. If you love the store, and others do too, just buy
the stock and ride it to riches.
But is it really that easy? Some big stock flameouts from the
last few years come to mind, including Krispy Kreme, which had an
enormous cult following but whose stock originally never lived up
to the hype.
There are always pitfalls to any investment strategy but there
are some things you should consider with "buy what you know".
Remember to Check Fundamentals
1. Always check fundamentals first.
Perhaps you are the only person who really loves the store or
the product. Is the company growing? Does it have solid
fundamentals?
2. Don't be blinded by the brand.
Many investors fall "in love" with a company and its products
and miss signs a company is changing and might not be as "great"
anymore. Keep checking the fundamentals, even after you buy a
company you love.
Where Do You Start?
Think about where you shop, where you eat, what products you
love. For example, are you excited when a Chipotle opens a block
from your office?
Some products and their brands are just really hot right now.
You know which ones they are. Go with your gut!
My colleague, Bill Wilton,
recently wrote about how guys should buy what they know in: Guys:
Buy What You Know.
I thought I'd take a look at what type of stocks women can buy
if they buy what they know. Of course, the stocks will depend on
your interests and they're not exclusive to men or women.
Buy What You Know
lululemon athletica inc. (Nasdaq: LULU) is a super hot
men's and women's clothing retailer. The company is famous for its
yoga pants and other active lifestyle clothes.
During the recession, many doubted that consumers would continue
to buy the $99 yoga pants, but those
naysayers were proven wrong.
In the fiscal first quarter same store sales were up 16%. The
company also continues to open up new stores, adding 5 stores in
the first quarter for a total of 142 stores in North America and Australia. The Canadian-based company isn't
even in Europe yet so there
continues to be further growth potential.
Earnings are expected to grow 38% in fiscal 2011 and another 25%
in fiscal 2012. They'd better, though, because this stock is not
cheap. Now trading at all-time highs, this Zacks #1 Rank (strong
buy) has a nose bleed P/E of 58.
Ancestry.com Inc. (Nasdaq: ACOM) is like facebook for
people who want to look up their family history. Not only can you
look up your own family tree in over 6 billion online records, but
you can help others who may be interested in the information you've
found.
Have you ever been on the website? I hope you have a few hours,
or days, because it is addicting, indeed.
The company is growing quickly as its subscriber base grew by
33% in the first quarter to 1.615 million from the first quarter of
2010. Subscriptions are available monthly or yearly.
Earnings are expected to grow 50% in 2011 and another 24% in
2012. But like lululemon, this Zacks #1 Rank (strong buy) is also
not cheap. Shares trade at 38x forward estimates and are near a new
multi-year high.
Ulta Salon Cosmetics & Fragrance, Inc. (Nasdaq: ULTA)
operates 394 retail stores in 40 states selling affordable beauty
products including cosmetics, fragrances, skincare and styling
tools.
The company has 8 million members in its loyalty program which
provides coupons and discounts to return customers. Cosmetics are a
relatively cheap buy for many women who have otherwise cut back on
expenses in other areas.
Ulta is not seeing a pullback in its customers. In the first
quarter, net sales were up 20.6% and same store sales rose 11.1%,
higher than the first quarter of 2010 which saw a 10.8%
increase.
Earnings are expected to rise 40.5% in fiscal 2011 and another
25% in fiscal 2012 as the company expands locations. Much like
lululemon, Ulta is still in the expansion mode.
Once, again, however, this Zacks #1 Rank (strong buy) isn't
cheap. It has a forward P/E of 40 as shares are near 52-week
highs.
Lots of Companies You Can Buy
In addition to the three highlighted here, perhaps you're a fan
of Coach (NYSE: COH), a Zacks #2 Rank (buy), which is
trading at 20x forward estimates. It is also expected to produce
double digit earnings growth this year.
Maybe you like to eat out at Red Robin Gourmet Burgers
(Nasdaq: RRGB). It's a Zacks #2 Rank (buy), is expected to see
earnings growth of 75% in 2011 and trades at 25x.
None of these are "cheap", in terms of value plays. But you're
buying the growth. Keep an open mind about what companies to buy.
Check fundamentals. If a stock seems too pricey for you, wait for a
pullback.
There are always hot brands and products. Why not cash in?
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