Attention, beachgoers: The holiday season is quickly approaching.
That is, for those executives at major companies who are tasked with placing orders and planning for the season months in advance. Clues are already emerging that executives are anticipating a better holiday season in terms of sales than one year ago. Credit that to the improving U.S. economy.
One clue is that capex budgets for retailers continue to run higher than a year earlier, in spite of the sharp slowdown in economic growth in the first quarter. Another is that execs are willing to maintain a cautious stance on growth for the second and third quarters, articulating to investors the fourth quarter will bring bumper results. This back-end-loaded approach to guidance could either work quite well, or lead to noteworthy firings in 2016 -- just the desire to leave it all on the field, so to speak, to me is encouraging.
Here are three stocks to tuck away today in front of the holiday season -- Black Friday is about five months away, after all.
I believe the company will be taken over by Disney (DIS) at some point during the next five years. The toymaker has worked very closely with Disney to make products off the media giant's biggest movie franchises the past year. And this year is no exception, following a revised licensing agreement the two struck last year that extended terms to 2020. Hasbro will be producing toys for Jurassic World, Star Wars and countless other major movie properties expected to gross gobs of money this year. Simple searches online at Wal-Mart (WMT), Target (TGT), Toys R Us and Amazon (AMZN) provide early glimpses into how much movie-themed product is poised to arrive to capture consumer dollars.
Whereas Hasbro is the toymaker to still own in spite of a surge in its stock price year to date, Mattel (MAT) is the one to avoid like the plague. Movie-based toys, or those that infuse the digital world with the physical world as seen in Disney's Infinity or Activision Blizzard's (ATVI) Skylanders lines, are the must-haves. Mattel's Barbie dolls, even as they are becoming more futuristic, continue to be yesterday's news.
Brinker International (EAT)
I think the holiday season will go a long way toward showing the mall is still important to people. Retailers are pulling out all the stops to infuse mobile shopping into the physical environments, including smart fitting rooms at Macy's (M) to buy online, pick in-store options for Target to apps that alert people to deals while they're walking around in a store. Even shops from Under Armour (UA) and VF Corp. (VFC) are getting visual makeovers to entice tire kickers, including new, expressive mannequins to richer-looking signage.
If the good ol' mall is alive this holiday season, chances are Chili's will be as well -- its 1,550-plus restaurants are positioned near the mall. I had the chance to sit down with Brinker International's CEO Wyman Roberts for TheStreet the other day and left very impressed with how the company is reinvigorating its menu and installing new, useful technology to better meet changing consumer preferences. The stock is down this year along with many sit-down dining restaurants as institutional investors continue to prefer the buzzy stories of fast-casual restaurants like Chipotle (CMG) and Shake Shack (SHAK). But with efforts by Brinker to improve its business not being priced into the stock here, and malls coming alive, I see an opportunity to buy low -- and hopefully sell high in 2016.
Prior to speculation surfacing in mid-May that it was exploring some form of value-enriching real estate transaction, Macy's shares were lagging the S&P 500 and Dow Jones Industrial Average. Lay the blame for that (which is unusual in that Macy's is a best-in-class operator) on profit margin pressure, as Macy's invests in technology needed to set itself further apart from the respectable J.C. Penney (JCP) and dying Sears (SHLD).
Further, the company's organizational overhaul announced earlier in the year has created some inefficiency (think people getting used to their new roles). However, there are reasons to take a stab on the stock at a mere 13.3x forward earnings. They include:
1. Listening to the public comments from execs since earnings were released in May regarding a real estate transaction, my sense is they are guiding the Street to expect something in early 2016. I suspect it could be the formation of a REIT, as levering up a balance sheet on an already levered-up department store to fund share repurchases and a special dividend doesn't seem too attractive for the long-term health of the business.
2. I like how the company has guided down investor expectations consistently for this year, frequently mentioning it's an investment year -- which raises the chances of positive surprises come the important holiday season.
3. The company will enter another holiday season as the best-equipped retailer to meet new shopping needs, such as mobile buying while in an actual store.
As an aside, I suspect the company will be selling the Apple Watch for this holiday season, too. Not in all its stores, just the top stores across the country (like the iconic Herald Square store in Manhattan). This may not move the needle a ton on sales, but will look great optically to investors.