stocks to avoid and stocks to buy

8/3/2019 Stocks to Avoid and Stocks to Buy

1/8

8BARGAINS

TO BUY

8HOT STOCKS

TO AVOID

WWW.FORBESNEWSLETTERS.COM

By Dee Gill, YCharts Pro
http://www.forbesnewsletters.com/http://ycharts.com/http://www.forbesnewsletters.com/http://ycharts.com/http://www.forbesnewsletters.com/http://ycharts.com/


2/8

Despite increasing evidence that people dont have tons of extra money these days, some of the hottest stocks

on Wall Street continue to be popular restaurants, fashion stores and entertainment options that require ex-

actly such free cash. And really, its easy to see the thinking behind these investments.

Everyone knows teenagers who shop at Abercrombie & Fitch and neighbors who sign up for Knology Internet

connections. We know that mothers and children alike wear Crocs; the wait for a table at BJs can be more than

an hour on Friday night; and certain Fossil handbags go really fast. Investing in these companies, which appear to

be making tons of money, makes a certain common sense. Its success we understand, right in our faces.

The share prices of such companies go up and up as investorsones who pay little attention to traditional val-

uationsplace bets that their bars and shops and toys will still look fly well into the future. Thats only a slight

oversimplification of how we got to todays market, where sports clothes company Under Armour trades at about

54 times earnings; BJs sells at a PE of 59; and a company that makes foam shoes goes for about 6.5 times its tan-

gible book value. Its hard to ignore the popular crowd, even after high school.

But running with the cool kids is rarely a good way to make long-term gains in the stock markets. Its particularly

risky today, when the threat that more gloomy employment or consumer confidence news will send overvalued con-

sumer stocks reeling is still very real. Rising gas and food prices may yet cut down profits at these places. At some

point, money once used to buy $50 Hollister sweats and $8 beers could go towards more boring essentials instead.

Even if the economy surprises us all with a really zippy recovery, consumer fickleness can deflate investor returns

without notice. Remember when Liz Claiborne was hot? Liz Claiborne Inc. recorded years of hearty revenue increases

and then, BOOM! someone slapped a big KICK ME sign on its back. Sales started a five-year slide that hasnt ended

yet, and investors are down 85%.

The problem with investing in popularity is that the public success we see gives us only a tiny hint of a companys real

worth. When half the middle school population wore Aeropostale across their chests, as they seemed to do in 2009, all

we were really seeing was that companys great revenue gains. And as Aeropostale proved, good revenues alone dont put

money in shareholders pockets. Aeropostale shares purchased two years ago can be sold today for about a 25% loss.

Aeropostale shares were selling at a mere 14 times earnings in 2009, and the company still reports consistent

growth and strong fundamentals. If this companys share price can so badly crash, what does that mean for

weaker companies trading at valuations two and three times higher? Makes you wonder about paying 46 times

earnings for shares of Knology, a company that often reports losses instead of profits.

For buying in todays uncertain market, YCharts suggests a portfolio with a geekier kind of cool; growing companies

with a modicum of safety that investors cant get with those highly valued shares. So we set the YCharts Stock Screener

to find companies with the following qualities: market cap of $1 billion or more; revenue growth and earnings growth

of at least 10% over the past 12 months; and share prices of less than 15 times recent earnings. In order to weed out busi-

nesses with pitiful fundamentals, we asked the list to show only companies YCharts Pro rated as attractive.

If those parameters are too wimpy for your taste, set the YCharts Stock Screener to your own comfort level.

2WWW.FORBESNEWSLETTERS.COM
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3/8

Lower the market cap requirement, or raise the acceptable valuation. Or get a longer list by adding the stocks the charts

label neutral and determine for yourself whether their futures are brighter than the charts historic focus can see.

Our Stock Screener run came up with 25 possibilities on July 12. In this report is a smack-down of sorts between a few

companies from our list against some of those more fashionable investments. Data from more stocks in each category can

be found by clicking on the link beneath each chart.

And yea, we know it would be more fun to brag about making money off Quicksilvers new surf shirts than the

corn companys dividend. But youll feel better about that if you can afford the next round of drinks.

BJS RESTAURANTS (BJRI) VS. BUNGE (BG)Its hard not to get excited about a company whose share price has risen 132% in the past 12 months. BJs Restaurants cre-

ated this run-up by spreading its restaurant/brew pub combo across about a dozen states while keeping its balance sheet strong.

But getting in on BJs growth now would mean paying nearly $60 for $1 of BJs earningsnearly triple the valuation for

shares of some of its competition for casual diners. Even Buffalo Wild Wings, a strong company whose revenues grew about

as much as BJs last year, trades at a price-earnings ratio less than half of BJs.

Maybe these recent BJs buyers believe the company will make $4 a share this year, which would turn that exorbitant PE

into a pretty cheap 15 times earnings. Unfortunately, earnings estimates for the company come in at about $1.06 per share

for 2011 and $1.27 for 2012,

leaving the price/earnings

ratio near 50.

Consider selling BJs

shares now (and shares of

Panera Bread and Chipotle

Mexican Grill, too, for similar

reasons) and buying another

kind of food company.

Bunge increased its revenues

nearly 18% in the past 12

months largely by turning

grains and other crops into

food and ethanol for sale

around the world.

Consumers will cut sit-

down restaurants out of their


Click here for more data. Source: YCharts.com
http://www.forbesnewsletters.com/http://ycharts.com/companies/BJRI/pe_ratio#zoom=5&compCos=BWLD,PFCB,TXRH,CAKEhttp://ycharts.com/companies/BJRI/pe_ratio#zoom=5&compCos=BWLD,PFCB,TXRH,CAKEhttp://www.forbesnewsletters.com/http://ycharts.com/companies/BJRI/pe_ratio#zoom=5&compCos=BWLD,PFCB,TXRH,CAKE


4/8

budgets quickly if gas

prices rise too much or

employment becomes

less certain. But theyll

continue to eat. Bunges

high sales also are some-

what protected by the

continuing rise in food

prices, and its doing a

great job of turning sales

into profits.

Most industry ex-

perts believe companies

the size of Bunge and

competitor Archer

Daniels Midland will

feel only minimal pain from upcoming changes in government ethanol subsidies. (ADM also made the cut in our

screen.) But angst over this has kicked down Bunges share price to the bargain level of 4.28 times earnings. Bunge,

a large cap with a dividend, has never been cheaper.

QUICKSILVER (ZQK) VS MOLEX (MOLXA)

Quicksilver makes

the skate, surf and

snowboarding gear

worn by the idols of

such sports and ama-

teurs alike. The com-

pany is pretty popular

on Wall Street too, al-

though it lacks some

basic stuff long-term in-

vestors appreciate, like

positive free cash flow

and return on equity.

Debt is going up while

cash is going down.



Click here for more data. Source: YCharts.co
http://www.forbesnewsletters.com/http://ycharts.com/companies/BG/eps_ttm#comp=revenue_per_share&format=indexed&zoom=5http://ycharts.com/companies/ZQK/debt_equity_ratio#zoom=1&comp=cash_operationshttp://www.forbesnewsletters.com/http://ycharts.com/companies/BG/eps_ttm#comp=revenue_per_share&format=indexed&zoom=5http://ycharts.com/companies/ZQK/debt_equity_ratio#zoom=1&comp=cash_operations


5/85WWW.FORBESNEWSLETTERS.COM

We cant offer a

price-earnings ratio

on this one because

it hasnt earned any-

thing in awhile. But

someone still loves

these shares, evi-

denced by its share

price at about 7 times

tangible book value.

(By comparison,

clothes company

Perry Ellis, which ac-

tually makes money,

is at 3.74).

Heres a more

plausible set-up for a happy ending: $68.14 million in net income and $80.33 million in free cash flow;

miniscule debt; and a share price at 1.74 times tangible book. Molex.

Molex is a World War II start-up now making the electronic connectors that allow the parts of a mobile

phone or personal computer to communicate with each other. It sells these essential parts to Apple and

many others in the business, so bad news from losers in the cell phone wars has occasionally hurt Molexs

share price. But its customer mix has balanced out into some nice growth lately.

Investors started gaining confidence in Molex earlier this year and ramped the share price up to above 17

times earnings. Investors willing to forego voting rights can still buy the companys A shares (MOLXA) for

less than 15 times earnings.

ABERCROMBIE & FITCH (ANF) VS. PETROCHINA (PTR)

Abercrombie & Fitch, owner of several mall stores, including Hollister and its own eponymous shops, re-

ported remarkable sales and earnings figures this year. Its U.S. stores have been doing well, but much bigger sales

gains overseas are what really hyped its numbers.

Many of Abercrombies stores appeal to the high school to 20-something crowd, with trendy clothes priced at

the higher end of mall store fashion. That niche helped tank its earnings the last time consumers got worried.

Some competitors fared better.

Even if the ever-growing European debt crisis cuts consumer spending overseas, or the one in the U.S. cul-

minates in more miserable economic reports, Abercrombies solid balance sheet makes the company likely to

survive. But its share price, now trading at about 35 times earnings, might not.

http://www.forbesnewsletters.com/http://ycharts.com/companies/MOLX/eps_ttm#comp=revenue_per_share&zoom=1&format=indexedhttp://www.forbesnewsletters.com/http://ycharts.com/companies/MOLX/eps_ttm#comp=revenue_per_share&zoom=1&format=indexed



For an overseas growth

play, consider looking

to necessary commodities,

in one of the worlds

faster-growing economies.

PetroChina is the biggest oil

and gas company in China,

where demand for those

products is rising a lot

faster than it is here. The

companys gargantuan

sizeits revenues were

$67.8 billion last quarter

hasnt kept it from marking

double-digit earnings and

sales gains.

Like other oil and gas

companies, PetroChinas

share price fluctuates some-

what with the prices of the

commodities. But its trad-

ing at a reasonable 12 times

earnings now, which is

about as cheap as this com-

pany gets. A bonus: a divi-

dend thats yielding 3.16%.


http://www.forbesnewsletters.com/http://ycharts.com/companies/ANF/eps_ttm#compCos=LTD,GPS,ARO&format=indexed&zoom=5http://ycharts.com/companies/PTR/eps_ttm#comp=revenue_per_share&format=indexed&zoom=5http://www.forbesnewsletters.com/http://ycharts.com/companies/ANF/eps_ttm#compCos=LTD,GPS,ARO&format=indexed&zoom=5http://ycharts.com/companies/PTR/eps_ttm#comp=revenue_per_share&format=indexed&zoom=5



CROCS (CROX) VS INTEL (INTC)

After almost losing everything in the last economic unpleasantness, shoe maker Crocs has done a valiant job

regaining investor confidence. Shares are up nearly 170% in the past 12 months, trading at an unusually grand

28.5 times earnings.

We can quibble over how

much demand for holeyshoes would be hurt if the

recession deepens, but the

real question is whether

Crocs can handle any kind

of blip. The company al-

ready is eating into its cash.

Heres whats happened to

free cash flow and cashfrom operations in that

same 12-month period

shares have climbed.

Take a look at computer chip maker Intel, a company that keeps around enough cash to buy out Crocs sev-

eral times over. Intel has done well in both earnings and revenues lately despite reports that demand for personal

computers is waning.

Worries about how this giant can continue to grow have shot down the price of Intel shares to valuations

lower than theyve ever been. Intel trades now at less than 11 times earnings, making it one of the cheaper stocksin the Dow. As for that growth issue, Intel contends that theres plenty of growing demand for chips in cell

phones and other electronic

devices, even if the PC mar-

ket goes south.

The charts give Intel top

scores for both fundamen-

tals and relative value. Its

3.39% dividend yield

makes the shares an easy

hold. And with its pile of

cash, the company can buy

a growth business if it really

needs one.


http://www.forbesnewsletters.com/http://ycharts.com/companies/CROX/free_cash_flow#zoom=1&comp=cash_operationshttp://ycharts.com/companies/INTC/eps_ttm#comp=revenue_per_share&zoom=5&format=indexedhttp://www.forbesnewsletters.com/http://ycharts.com/companies/CROX/free_cash_flow#zoom=1&comp=cash_operationshttp://ycharts.com/companies/INTC/eps_ttm#comp=revenue_per_share&zoom=5&format=indexed


8/8WWW.FORBESNEWSLETTERS.COM 8

FASHIONABLY OVERPRICED:

Company Rev. Growth % Div Yld % PE

BJs Restaurants (BJRI) 19.05 0 58.96

Under Armour (UA) 36.31 0 53.99

Knology (KNOL) 16.20 0 47.09

Peets Coffee & Tea (PEET) 8.96 0 41.54

Vail (MTN) 18.34 1.30 37.60

Abercrombie & Fitch (AFN) 21.64 1.00 35.13

Panera Bread (PNRA) 15.89 0 33.92

Crocs (CROX) 35.9 0 28.31

YCHARTS BARGAIN ALTERNATIVES:

Bunge (BG) 17.87 1.50 4.30

ManTech International (MANT) 19.28 2.00 6.43

Archer Daniels Midland (ADM) 32.57 2.10 8.92

Microsoft (MSFT) 13.27 2.60 10.73

Intel (INTC) 24.74 3.30 10.79

PetroChina (PTR) 45.56 3.10 12.36

Barrick Gold (ABX) 20.66 1.10 13.10

Molex (MOLXA) 15.63 3.68 14.12

Don't go into the market alone. Forbes offers more

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