3 Companies That Will Benefit From Women's Growing Purchasing Power
Editor's Note: This story has been updated since its original publication in the April 2011 issue of Kiplinger's Personal Finance magazine.
If you want to see what's driving the economic rebound, look at your mom, or your sister, or your daughter. Women survived the recession in better shape than men, and several trends point to increasing economic clout in the long term, according to a research report from Bank of America Merrill Lynch.
At the start of the slump, the unemployment rate for men and women was roughly equal. A year ago, there was an unprecedented two-point gender gap in the rate, largely because of the decimation in male-dominated manufacturing and construction industries. The gap has narrowed but is still significant, with 9.3% of men unemployed in March versus 8.3% of women.
Moreover, the long-term outlook for the finances of women is bright. Women make up the majority in nine out of ten occupations projected to add the most jobs through 2018. For every two men who graduate from college, three women do. And the wage gap is closing: The median income for women has risen 1% annualized over the past five years; for men, it has fallen at a rate of 1.5%.
The conclusions investors can draw are that women, who already make the bulk of household spending decisions, will enjoy increased earnings potential and stronger purchasing power for years to come -- and that companies that cater to women should do well, too. Here are three stocks we think are good ways to play the trend (all prices and related data are as of the April 25 market close).
Chico’s FAS (symbol (CHS, $14.93)
Specialty retailer Chico’s has nearly 1,200 stores. The eponymous Chico’s sells casual clothing to baby-boomer women; White House Black Market stores cater to women in their twenties with contemporary fashions primarily in shades of black and white; and Soma offers intimate apparel.
Despite a sluggish economic recovery and higher costs for materials, Chico’s earnings are on the upswing, thanks to savvy inventory management and stepped-up marketing efforts. The company employs its own designers, giving it a cost advantage over competitors who outsource. Online sales are surging. Analysts expect Chico’s to log earnings growth of 17% annualized over the next five years. The stock sells for 18 times estimated earnings of 84 cents a share for the fiscal year that ends next January.
Allergan Inc. (AGN, $78.22)
Allergan makes the products that make women smooth-skinned (Botox wrinkle relaxer and Juvéderm facial filler), long-lashed (Latisse eyelash thickener), busty (cohesive gel breast implants) and thin (Lap-Band gastric band implant). Regulators recently okayed Botox, which is expected to produce more than $1.6 billion in sales this year, to treat migraines, too. That’s potentially a $1 billion market, says the Value Line Investment Survey.
Allergan is also well-known for its eye-care pharmaceuticals, including Restasis drops to treat dry eyes. Earnings are expected to grow at a rate of 15% annualized over the next five years. The stock, which is near a 52-week high, sells at 22 times estimated 2011 profits of $3.61 per share.
Tiffany & Co. (TIF, $66.85)
Nothing says luxury like a robin’s-egg-blue box from Tiffany. The shares took a hit following the earthquake in Japan, which accounts for 20% of total sales, but they quickly recovered and are near a 52-week high. Tiffany has reported that it expects sales in Japan to decline 15% for the quarter that ends April 30.
But that’s not enough to dull the company’s luster over the long term. Standard & Poor’s sees momentum building, with another 21 stores opening over the next 12 months (the company has 225 stores worldwide) and expansion of the online and catalog businesses.
Expect a marketing blitz next year as the company, founded by Charles Lewis Tiffany in 1837, celebrates its 175th anniversary. Analysts expect earnings growth of 14% annualized over the next five years. The price-earnings ratio, based on profit estimates of $3.31 per share for the year ending in January, is 20.