5 Stock Pitches for Opening Day
Baseball and investing fit like a ball and a glove. The obsession with statistics and analysis, the relentless pursuit of the best record, and heartbreaking losses are common to both (plus, there’s the brilliant synchronicity of Chicago Cubs and bear markets). So with Opening Day nigh, we thought it would be a good time to size up the stocks of baseball-related companies.
This isn’t as easy as it used to be. A bunch of esteemed public companies that used to own major-league teams have left the game. Anheuser-Busch (which merged with Belgium brewer Inbev in 2008) Walt Disney, Fox Entertainment Group and Time Warner have each sold their interests in the sport. Tribune Company still owns a 5% stake in the Chicago Cubs, but the stock trades in the over-the-counter markets because the company is in Chapter 11 bankruptcy proceedings. But like a scout rovering the minor leagues for prospects, we’ve found five companies linked to the national pastime whose shares could be hits, from singles to home runs. All depend on baseball in one way or another for at least part of their revenue.
Leading off is Jarden Corp. (symbol JAH). This organization owns a hodgepodge of businesses, from Bicycle playing cards to Sunbeam appliances to Coleman camping equipment. But Jarden’s roster also includes Rawlings, the top maker of baseballs, gloves and batting helmets. The company makes all the helmets for Major League Baseball players and has been MLB’s official supplier since 1977.
The recession hurt Jarden in most of its businesses, but there’s reason to believe the company won’t be returning to the disabled list. It cut debt, reduced overhead and focused on developing new products, which are expected to generate 30% of 2010 sales. “Jarden is in considerably stronger financial shape than last year and is shifting from defense to offense,” says Jefferies & Co. analyst Douglas Lane. Jarden chief executive Martin Franklin recently told CNBC that Rawlings is off to a strong start, and prices for its equipment are rising after dropping in 2009.
The stock closed at $33.34 on March 30 and trades for 12 times the $2.72 a share that analysts expect the company to earn in 2010. That’s three times its price on last year’s opening day, so the story’s out. But Lane thinks Jarden shares will hit $40, so it could still be worth taking a swing.
Let’s go from balls and gloves to apparel. Under Armour (UA) outfits several big-league teams with its famous moisture-wicking garb. As with any apparel maker, distribution is the name of the game. William Blair analyst Sharon Zackfia says Under Amour has the potential to triple its annual sales -- currently $850 million -- by broadening distribution on the West Coast (the company is best known near its hometown of Baltimore) and by branching out from sporting-goods stores to mass retailers. The company is taking a step in that direction with a test run at Bloomingdale’s in California, New York, New Jersey and Pennsylvania.
Zackfia thinks Under Armour shares will beat the market over the next 12 months, though it’s not an inexpensive pickup. The stock, at $30.25, trades for nearly double its price of a year ago. That’s a steep 29 times the average analyst earnings estimate for 2010 of $1.04 per share. But Under Amour is still young and has above-average earnings power in all its fields.
The list of official major-league sponsors features PepsiCo (PEP) in a big way. From Gatorade to Frito Lay to Pepsi-Cola, this global powerhouse is the Albert Pujols of stocks -- a consistent and dominant star that never has a truly bad year. At a price of $66.77, Pepsi, which recently boosted its dividend by 7%, yields 2.9%. The dividend-growth record, plus a moderate price-earnings ratio of 16 based on expected 2010 earnings of $4.17 per share, is attractive because Pepsi appears slated to see its profits grow 11% to 13% in 2010.
Hibbett Sports (HIBB) caters to small-town kids who want to make it to the big leagues. The sporting-goods chain targets counties with small populations (between 30,000 to 80,000 residents) that don’t attract larger rivals, such as Dick’s and Big 5. Hibbett has more than 760 stores in 24 states, and the company is in the midst of an expansion plan that projects to add or renovate 50 outlets. Hibbett can afford to do so because it has no debt and a pile of cash on hand.
The stock, at $26.12, trades for 20 times the $1.29 per share analysts expect Hibbett to earn this year. Like many other consumer stocks, these shares have soared from last year’s bottom, but Zacks Investment Research thinks Hibbett is worth $30 a swing. You could miss, or you could swat a home run.
If Sirius XM Radio (SIRI) stock were part of the game, it would be the knuckleball. Like the fluttering pitch, there’s no telling where it is going. Sirius has not turned a profit in 16 years . Its 2008 merger with rival XM Satellite Radio and the $800 million in debt it recently sold to avoid bankruptcy are keeping it on the air. But the company remains the longest of long shots, trading for just 84 cents a share after years of wild ups and downs (but mostly crushing losses).
Lazard Capital analyst Barton Crockett thinks a recovery in new-car sales would generate a bunch of new subscribers because car buyers can install satellite radio as an option -- and after the merger with XM, this is the only choice. The network carries all major-league games, so fans everywhere can follow their team even if they take a cross-country driving vacation. If you want to try to hit -- or catch -- a knuckler, here’s your shot.