With Father’s Day around the corner, it’s time to focus on dad. Sure, the holiday will temporarily boost sales of ties, electronics, golf equipment and power tools as families buy gifts for the man of the house. But more broadly, companies that cater to dad’s tastes can make great investments. We’ve identified five stocks with prospects any dad will appreciate.
Guys love gadgets, and there is arguably no better gadget maker than Apple (symbol AAPL). Even diehard users of Windows-based personal computers recognize that Apple, with its iPods, iPhones and iPads, has created a network of slick tech gear that’s hard to beat. Morgan Stanley predicts that Apple will sell 16 million iPads, which debuted in April, in the tablet computer’s first year on the market. That number would surpass the more than six million iPhones sold in the smart phone’s first year. Beyond its handheld devices, Apple’s Macintosh computers continue to take market share from PC makers.
Not all is rosy with Apple, though. U.S. regulators are rumored to be investigating the company for antitrust violations. No probes have been announced, so it is difficult to gauge whether there’s a real legal risk for Apple. There are also concerns about the health of Apple’s boss, Steve Jobs. Few companies are as closely linked to a single person as Apple is. The company’s main challenge is to design great gizmos that continue to outmatch those from such smart and well-heeled rivals as Google (GOOG), Microsoft (MSFT) and Sony (SNE).
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Over the past year, Apple’s stock has gained 81%, compared with 16% for Standard & Poor’s 500-stock index. Still, at $253.51, the shares seem reasonably priced given Apple’s exciting growth opportunities (all prices in this story are as of the close on June 11). They trade at 19 times the $13.47 per share that analysts expect the company to earn in the fiscal year that ends this September.
Dads who are gearheads flock to AutoZone (AZO). The Memphis company is the nation’s largest chain of auto-parts stores, with more than 4,500 locations. The company has sights on expansion in Mexico, where it has fewer than 220 stores. AutoZone also wants to boost sales by selling more parts to auto-repair shops, which now account for only 12% of sales. Plus, given uncertain economic times, drivers are more likely to hold on to their cars longer. And that means higher sales of auto parts.
AutoZone appears to be well priced. At $189.30, the stock sells at 12 times estimated earnings of $16.43 per share for the year that ends August 2011.
Come Father’s Day, some dads (and perhaps their sons) will crack open a bottle of the good stuff, and odds are high that it will come from spirits maker Diageo (DEO). The U.K.-based company owns eight of the world’s 20 best-selling liquor brands, including Captain Morgan rum, Johnnie Walker whisky and Smirnoff vodka. Residents of developing nations thirsty for Western booze are fueling the company’s growth.
But worries about the euro seem to have dented the stock. At $64.67, the stock has fallen 10% since mid April. It trades for 13 times the $4.80 per share analysts expect the company to earn for the year that ends June 2011. Morningstar puts Diageo’s fair value at $80 per share.
If your dad’s idea of casual Friday is a blazer and khakis, Jos. A. Bank Clothiers (JOSB) is the stock for him. The Hampstead, Md., menswear retailer appeals to well-heeled customers (their average household income is more than $100,000). Bank’s sales and earnings grew during the 2007-09 recession, and, with no debt and $21.8 million in cash on hand, Bank is on strong financial footing.
The company plans to test the waters for lower-price merchandise by launching five stores in outlet malls this year. Should the experiment prove successful, Bank, which has more than 470 haberdasheries in the U.S., plans to expand to at least 50 outlet malls.
Bank shares, at $60.24, have climbed 48% since mid February, but they appear to be cheap relative to those of its main rival, The Men’s Wearhouse (MW). Bank trades at 13 times estimated earnings of $4.49 per share for the fiscal year that ends next January. At $22.04, the stock of Men’s Wearhouse trades at 17 times estimated earnings.
Sports-loving dads will root for Under Armour (UA). The maker of moisture-wicking athletic apparel is 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 stores in California, New Jersey, New York and Pennsylvania. Standard & Poor’s analyst Marie Driscoll thinks the company can also boost sales by selling more online and by expanding its footwear business.
The stock, at $34.34, has gained 43% over the past year. It trades at 27 times estimated 2010 profits of $1.28 per share. That may look pricey, but Under Armour is still a young company with room to run. Driscoll rates the stock a “strong buy” and gives it a 12-month target price of $42.
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