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Stock Screen: Best & Worst Performing Industries – June 10, 2011
Among the many features found in each week’s Issue of Value Line’s Selection & Opinion is a list of the seven best and worst performing industries over the past six weeks. These rankings can be found on the inside back cover of Selection & Opinion. The roughly 1,700 stocks in the Value Line universe are currently divvied up among 98 industries. Notably, for the purposes of calculating these results, the performance of each stock is equally weighted to the others in its industry (i.e., irrespective of market capitalization). This data also form the basis for the Relative Strength price charts found on each industry page in the Value Line Investment Survey.
A quick review of the industries on our best/worst performer list can usually provide some insight into the underlying trends driving the broader market. Clearly, this is a rough time for equities. The Value Line Arithmetic Average has slumped 5.8% for the period under review (ended June 7th), its worst performance over a six-week stretch since last summer. The weakness extends across the broad spectrum of industries, with only two groups, Restaurants and Toiletries/Cosmetics, managing to eke out small gains since late April. Concerns that the economic upswing is faltering appear to be weighing on the markets. In view of this, we are not surprised to find noncyclical industries, such as Food Retailing / Wholesaling and Food Processing, winning spots on the Best Performing list. Investors looking to add some defensive holdings will likely want to take a closer look at these industries. One such example is The Kroger Company (KR) stock. Kroger is the nation’s largest grocery store operator, with annual revenues likely to top $85 billion this year. From a profit perspective, the company has performed erratically over the past decade, partly reflecting its efforts to lower prices and compete more effectively with discount formats, such as Wal-Mart’s (WMT - Free Wal-Mart Stock Report) supercenters. The bottom line, though, has begun to rebound in recent quarters, and we expect this trend to continue during fiscal 2011, which began January 30th, with earnings rising nearly 10%, to $1.90 a share.
Interestingly, as mentioned above, recent concerns about the state of the economy haven’t caused the market to lose its appetite for restaurant stocks. Spending at these establishments is typically regarded as relatively discretionary, but investors appear confident that consumers will continue making trips to their favorite dining establishments. Readers inclined toward this view may wish to consider the likes of BJ’s Restaurants (BJRI) or Buffalo Wild Wings (BWLD) for their portfolios. BJ’s operates about 100 casual-dining restaurants in the western United States, with a menu emphasizing deep-dish pizza and hand-crafted beers. Earnings have been rising rapidly since the end of the recession, and strong March-quarter results suggest this trend will continue in 2011. Sales at established restaurants are climbing nicely, (up nearly 8% in the March period), and the company has a healthy pipeline of new stores (about 15 should open this year) waiting in the wings. Speaking of which …
The profit picture is bright at Buffalo Wild Wings, as well. The casual-dining chain, which now includes about 750 locations, most operated by franchisees, is best known for its buffalo-style chicken wings. These items, which are available in 18 different sauces, have been a hit with consumers and investors alike. The company went public in 2003 and earnings have increased every year since, including a gain of 24% in 2010, to $2.10 a share. In the wake of an impressive first quarter, in which share net rose 40%, we look for 2011 full-year profits to climb about 25%. Investors interested in the Minnesota-based restaurant operator, though, should keep an eye on the sports pages. If the current labor impasse between professional football players and team owners results in cancelled games this fall, it would likely lead to a temporary setback in guest traffic at the company’s restaurants.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.