As mentioned last month, we’ve achieved some stability in regards to which stocks remain the crème de la crème. This month, we are keeping three of our previous month’s Top 5 stocks, swapping out two, and adding five new names to our Top Stocks list.
First, our swap-out names:
Alexion Pharmaceuticals (NASDAQ:ALXN), and McDonald’s (NYSE:MCD). Both of these stocks are still A-rated buys, and they are held in high regard, but I’m substituting in two other consumer-driven stocks that have even better top- and bottom-line prospects. With consumer confidence and spending on the rise, you’ll want to get a piece of these companies that have stunning track records of accelerating sales growth.
Now let’s move to our additions:
As the leading auto parts chain in the U.S., AutoZone (NYSE:AZO) is known for helping its customers “Get in the Zone.” And lately, more and more people have been going to AutoZone to keep their cars running longer. This trend is most clearly shown in AutoZone’s quarterly same-store sales results, which have been steadily increasing over the past few quarters.
In the most recent quarter, the company’s same-store sales grew 5.9%, which accelerated from the prior quarter’s 4.6% gain. Another thing I love about this stock is that it has a solid history of share repurchase programs. A few weeks ago, management announced that the company is buying back an additional $750 million in its stock. The company is clearly committed to returning value to its shareholders.
Dollar General Corporation (NYSE:DG) is another retailer that has benefited from the recent wave of frugality that has hit the U.S. With just under 10,000 stores nationwide, the company offers a wide range of discount goods for $10 or less. I’m keeping both Dollar General and Dollar Tree on the Top 5 because they both serve two complementary but different functions as bargain retailers.
As it stands, Dollar General boasts better earnings growth (the second-best in the industry, in fact), while Dollar Tree has a better track record with its sales growth. Dollar General is also larger and has a slightly lower Price/Earnings ratio.
Dollar Tree (NASDAQ:DLTR) is slightly smaller than Dollar General, but with over 4,000 stores across the United States, it is the most successful single-price-point retailer in the nation. Towards the end of February, the company reported strong sales and earnings growth for the fourth quarter. Compared with the same quarter last year, net income climbed 16% to $187.9 million, or $1.60 per share, which was largely in line with the $1.59 per-share Street estimate. Over the same period, net sales climbed 13% to $1.95 billion, slightly topping the consensus sales estimate of $1.93 billion.
Similar to AutoZone, this company’s same-store sales have been accelerating as well. In fact, in the third quarter, Dollar Tree grew same-store sales by 4.8%, and then pulled off an astounding 7.3% same-store sales growth in the fourth quarter!
Lorillard (NYSE:LO) is one of four tobacco stocks we liket, and it was added last issue because it is a smaller and more agile company than any of the Big 3. And, in keeping with the rest of the tobacco industry, the company recently upped its dividend payment by 19.2% to $1.55 per share! This means that LO’s dividend yield now weighs in at 4.8%. This is lower than Altria Group Inc.‘s (NYSE:MO) 5.5% yield, and Reynolds American Inc.‘s (NYSE:RAI) 5.4% yield, but higher than Philip Morris International Inc.‘s (NYSE:PM) 3.6% yield.
With over 1,000 stores in the U.S., Ross Stores (NASDAQ:ROST) is the second-largest off-price apparel retailer in the country. The company recently released its same-store sales results for February, and the results were stunning. Last month, the fashion bargain chain grew same-store sales by 9%, which positively trounced the 4.6% consensus estimate and represents a significant uptick from its 5% growth in January.
Recently, thanks to a combination of higher merchandise gross margin and lower shortage costs, Ross Stores announced strong operating results for the fourth quarter. Compared with the same quarter last year, sales climbed 12% to $2.4 billion, and net earnings jumped 19% to $192 million, or $0.85 per share. These are solid results, as the retailer was able to accelerate earnings despite difficult year-over-year comparisons. Ross Stores continues to be a top off-price apparel retailer due to its ability to offer unbeatable brand-name bargains while maintaining lower store inventories. And the great thing is that the best is still yet to come.
Historically, March and April represents a strong sales season for Ross Stores, and management is hopeful that the company will continue to improve in the coming months.