However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.
There are 70 stocks listed under "consumer durables" in the CAPS' screener, of which only two dozen carry well-respected four- and five-star ratings. Those accolades mean our 180,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about the ones below:
CAPS Rating (out of 5)
52-Week Price Change
Estimated 5-Year Growth Rate
iRobot (NAS: IRBT)
National Presto Industries (NYS: NPK)
Source: Motley Fool CAPS, N/A = not available
International and financial worries still grip the market, but with the S&P 500 down 1% over the last 12 months it may not be surprising to learn that CAPS consumer durables stocks have dipped 2% in that same time span. So let's take a closer look at why investors think these two companies that fell short of the market won't be jumping from the frying pan into the fire.
How clean is clean?
Apparently the Defense Department doesn't. Home robotics maker iRobot launched in April one of the largest marketing campaigns in the company's history around the catchphrase "iRobot, Do You?" but as its quarterly results indicated military sales fizzled, dropping 58% from the year-ago period. While its home robot division saw sales continue growing, rising 20%, it wasn't enough to offset the decline in defense spending because the latter makes up a much smaller component of total sales.
Yet, I believe iRobot will ultimately surprise Wall Street. Defense spending is notoriously lumpy, and there is uncertainty now that orders will come in. It just booked a $6 million order the other day for its tactical PackBots, which had been one of the missing keys in last quarter's effort. While it actually shipped more units in the defense segment than it did last year, it was for lower-priced First Look units rather than higher-margin PackBots and SUGVs. As a result, pricing fell 73%.
With the government cutting programs like the one which Boeing (NYS: BA) supplied the Army with SUGVs, it makes it a challenge for markets to believe it can clean up. It was the reduced outlook from lower defense spending that led to the big drop in shares back in February. However, with consumer sales continuing to rise, it will need only to score a couple of defense contracts like the one it just won to change direction, something I think is quite possible.
CAPS member mariusfacheekily hopes "Uncle Sam invades some new(or old) country" as a means of realizing the importance of iRobot's robots, but it does underscore the reality that this is still a very dangerous world and robots can make our troops' job safer.
With the stock down 44% from its 52-week high, I'm rating iRobot on CAPS to outperform the broad market indexes. Add the robot maker to your own watchlist, then let me know in the comments section below or on the iRobot CAPS page if you agree that defense orders will eventually come through.
Apparently the Defense Department doesn't do kitchen gadgets, either. While best known for popcorn poppers, salad-making gadgets, and pizza ovens National Presto actually derives more than half of its sales from defense products, like high-power 40mm ammunition. Unfortunately, the government has been cutting back on sales there, too, as revenues fell 16% last quarter leading to another disappointing earnings report.
But appliances sales were also down, dropping 9%, continuing a trend the company reported last year of retailers buying more private-label products. But it also blamed the "just-in-time consumer" -- a play on the inventory control strategy -- who buy just what they need when they need it and not have extra on hand. Of course, why someone would want to stock up on waffle irons goes unanswered.
Maybe it's diversified away from Wal-Mart (NYS: WMT) or maybe the retailer cut back on its own stock of National Presto products, but the retailer is no longer a 10% customer -- it actually accounted for 11% of sales in 2009 and 2010 -- and probably explains more of its lagging performance than anything.
The one area National Presto has been excelling in is adult diapers, since those in need presumably do want to have extra on hand. Sales in its absorbent products division have remained stable for a while now. It's also seemingly taking share away from Kimberly-Clark (NYS: KMB) , the leader in incontinence products with its Depends brand, which saw sales rise only 8% last quarter.
The ammunition and appliance maker seems to have more issues than iRobot does, as it's also seeing declining consumer demand for its knick-knacks. It would seem difficult to build a growth model based on adult diapers however popular they are proving to be.
So even with the stock trading at two-thirds of its recent highs and at 10 times earnings, I'm rating National Presto to underperform the market. Add the stock to the Fool's free portfolio tracker and let us know in the comments section below if you think it can come out guns a-blazin' again.
The ball's in your court
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At the time thisarticle was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of National Presto Industries. Motley Fool newsletter services have recommended buying shares of iRobot and Kimberly-Clark; and creating a diagonal call position in Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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