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Three Under The Radar Consumer Stocks, Two Are A Buy Now

Posted on Friday, December 6th, 2019 by Thomas Hughes

The earnings reports from Lowes, Target, Dick's Sporting Goods and Best Buy prove that the consumer is alive and well. These companies all beat their consensus targets, provided a positive outlook for the future, and saw their stocks shoot higher because of it.

The strength in retail is not limited to the big-name, big-box high-profile companies. A trio of reports from some under-the-radar names came out today highlighting the power of consumer spending. All three names saw double-digit moves in their stock prices following the release of the reports but only two are a buy for investors today.

Johnson Outdoors Is Well-Positioned For Consumer Trends

Johnson Outdoors (JOUT) is up more than 10% after reporting earnings for the fourth quarter. The maker of iconic brands like Minnkota, Humminbird, and Eureka camping equipment reported a 14% increase in YOY revenue but that’s not what got the market moving. Growth is expected to continue into next year supported by strength in core segments Fishing and Camping.

Due to the timing of certain tariff exclusions this year Johnson Outdoors posted a surprise profit in the 4th quarter. The margin of the beat is $0.49, staggering in itself, but more so because the company tends to post a loss in the 4th quarter. Going into 2020, the guidance is for moderate sales growth which I interpret to be mid-single digits but likely low estimates due to the labor market trends.

Looking forward, management is expecting an impact of $5 to $6 million in F2020 but isn’t worried. The balance sheet, cash-position and cash-flow ensure the company will be able to move forward with strategic growth initiatives. The market liked what it heard and immediately sent shares moving higher. Today’s price action confirms a reversal that has been building in this stock. The stochastic suggests this rally has some room to run, the next targets for resistance are near the $84 to $88 level.

Three Under The Radar Consumer Stocks, Two Are A Buy Now

Big Lots Returns To EPS Growth

Big Lots (BIG) has been in a transformation for well over a year. The restructuring and transformational efforts are called Operation North Star by company insiders and beginning to bear fruit. Although comps were weak in the 3rd quarter CEO Bruce Thorn says Big Lots will return to EBIT and EPS growth near year.

“I'm also highly encouraged by the progress we are making on our transformational strategies, as part of Operation North Star, to drive profitable long-term growth and deliver value to our shareholders. After a year of restructuring and transition in 2019, and despite the ongoing impact of tariffs, we expect to return to EBIT and EPS growth in 2020, including a significant improvement in normalized free cash flow."

One of the things investors keyed in on today was Big Lots divestiture of the Rancho Cucamonga facility. Big Lots sold the distribution center as part of its restructuring efforts, choosing to combine efforts in another facility, and used the proceeds to reinforce the balance sheet. These efforts will improve free cash flow in 2020 and help sustain Big Lots 6% dividend. Because Big Lots is trading at an ultra-low 5X forward earnings this stock could easily double or triple in price over the next twelve months.

Three Under The Radar Consumer Stocks, Two Are A Buy Now

American Outdoor Brands Is In Demand

American Outdoor Brands (AOBC) is also on the move following its 4th quarter earnings report. The company says demand for handguns is underpinning sales and offsetting softness in other areas. The impact of the upcoming election has been virtually nil but management stands ready to act should trends change. Going into the next quarter, AOBC has one major new product in the shipping channel now and several more innovations slated to be revealed at an upcoming trade show.

The news that really got this stock moving was the guidance. The company increased its revenue guidance to a range of $680 million to $700 million from the previous $630 to $650. The consensus guidance for full-year revenue is only $643 million so investors can expect a round of upgrades in the coming days and weeks.

Shares of AOBC popped on the news but hit resistance shortly after the open. The stock is now pulling back from the 6-month high where it may begin to consolidate. The outlook for prices will remain bullish so long as the consolidation remains above $9.00. If prices fall below $9.00 a deeper correction is likely.

Three Under The Radar Consumer Stocks, Two Are A Buy Now

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