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Zacks.com daily stock analysis

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Zacks.com daily stock analysis

Editor’s note: PRESIDENT&CEO follows Zacks’ daily blog summary of interesting equity investment options.

Here are highlights from Monday's Analyst Blog:

3 Men's Footwear Stock Picks

Even as men continue to show high degrees of brand loyalty when it comes to footwear purchases, their attitude toward casual footwear is changing. A new study by NPD Group shows that this attitude continues to evolve as male preference for novelty and new trends in fashion is reflected in their choice of footwear.

Footwear Trends

When it comes to shoes, a majority of men shop only when they need a replacement. They also continue to show strong brand loyalty and are ready to pay a higher price for well-known brands. NPD's Men's Footwear Brand Focus Study 2014 clearly reflects this trend. Nike, Inc. (NYSE:NKE-Free Report), Adidas, Reebok continue to feature among the top five brands ranked on the basis of awareness and ownership.

The dominance of athletic shoes as a category is also borne out by sales figures. According to NPD Group, U.S. retail sales of shoes, excluding athletic shoes amounted to $41.5 billion in 2013. Data from Statista.com shows that athletic shoes sales contributed an additional $20 billion in sales during last year.

Fashion Trends Push Sales

Additionally, according to data from NPD, the footwear market for men increased by 8% over the last two years. This is twice as much as the rate of growth of women's footwear over the same period. The desire to wear better looking shoes is contributing much of the growth in the sector.

This is why when it comes to casual footwear, choices for men become more fragmented. As men make additions to their wardrobes, the need for shoes in different colors, materials and styles increase in keeping with growth in the apparel and accessories market for men. Despite such a trend, Nike and Skechers USA Inc. (NYSE:SKX-Free Report) are leaders in rankings of athletic as well casual or dress footwear.

The overall picture that emerges is that men retain brand loyalty when it comes to footwear purchases. However, when it comes to casual footwear, they are willing to try out new brands. Two definite trends emerge. Firstly, men will try new styles from their existing brand choices. Secondly, they will also purchase shoes from new brands.  

Our Choices

Below we present three stocks which will gain from these trends, each of which also has a good Zacks Rank.

Skechers USA Inc. designs, develops, markets, and distributes footwear for men, women, and children in the United States and overseas under the SKECHERS and other branded names. Skechers products are available in more than 100 countries and territories. The company targets the style-conscious 12 to 24 year-old men and women attracting them with its youthful brand image and fashion forward designs.

Skechers holds a Zacks Rank #1 (Strong Buy) and has expected earnings growth of 140.7%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 23.94.

Foot Locker, Inc. (NYSE:FL-Free Report) is a worldwide retailer of shoes and apparel. The company operates more than 3,400 primarily mall-based stores in the U.S., Canada, Europe, Australia and New Zealand. The company operates in two business segments, Athletic Stores and Direct-to-Customers.

The company currently holds a Zacks Rank #2 (Buy) and has expected earnings growth of 19.6%. It has a P/E (F1) of 16.66.

Deckers Outdoor Corp. (NYSE:DECK-Free Report) is a leading designer, producer, and brand manager of innovative, niche footwear and accessories developed for outdoor sports, and other lifestyle-related activities. These includes casual open and closed-toe outdoor footwear, as well as outdoor performance footwear, including multi-sport shoes, light hiking shoes, amphibious footwear, and rugged outdoor travel shoes; and sheepskin footwear, and sandals under various styles.

Apart from a Zacks Rank #2 (Buy), Deckers has expected earnings growth of 13.5%. It has a P/E (F1) of 20.07.

The expansion and steady growth of male footwear bodes well for the industry as a whole. The fact that this is being powered by interest in casual styles is also a promising sign. In such a business environment, these stocks would make good additions to your portfolio.

Petrobras Seeks Higher Output While Costs Steepen

On Sep 4, 2014, we issued an updated research report on Petroleo Brasileiro SA, or Petrobras (NYSE:PBR-Free Report). Petrobras – the largest publicly traded Latin American oil company – is planning to increase its oil production considerably in the long run to support its aim of being among the top five oil companies in the world by 2030. However, the company's increased exploration cost is a matter of concern.

This balanced view is reflected in Petrobras' current Zacks Rank #3 (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market in the next one to three months.  

Petrobras – which produces and refines almost the entire crude oil and natural gas of Brazil – has an intension to place itself among the top five integrated oil companies in the world by 2030. To support the plan, the company has a target to increase its daily oil production significantly to 4 million barrels of oil per day (MMbpd) and is expected to produce at that rate from 2020.  

We appreciate Petrobras' view to focus on properties that have the potential to generate significant cash flows for its shareholders. The company has divested several non-core assets since it has restructured its divestiture program in 2012. Moreover, on Jul 2014, Petrobras got an approval from its board of directors to sell its 40% stake in Gasmig − a Brazilian natural gas distribution company – to electricity firm Companhia Energética de Minas Gerais or CEMIG.

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