Lorillard (NYSE:LO) does not have international exposure, as it sold all such international rights in 1977. Emerging markets are much less hostile to tobacco companies than developed markets, though Lorillard is reporting operational performance like an emerging-market tobacco company — which is absolutely not the case.
I don’t know how long Lorillard can keep it up in the present environment, but it has a 4.5% dividend covered by a 65% payout ratio. The company is small enough to continue to gain market share even in a stagnant or slowing market, but also big enough to be able to flex muscles against the Nos. 1 and 2 players.
How Big Is Too Big?
It is amusing to hear that Apple (NASDAQ:AAPL) is expensive “above $600.” The shares trade at 17.9 trailing and 12.5 forward EPS, which in my book is cheap given the staggering EPS growth. Faced with the law of large numbers, investors expect the same dollar growth in EPS to be a smaller percentage every time it is reported because the comparison base will be much bigger.
Still, Apple keeps surprising us.
Apple holds a combined 60% market share in tablet and smartphone operating systems. Given that Apple does not license its software, the hardware belongs to it, too. Google‘s (NASDAQ:GOOG) Android operating system has made great progress against Apple in the smartphone market, but when it comes to tablets, the competition is simply pathetic at this point. Sure, better Android tablets will come to market likely this year, but there has yet to be one on par with iPad.
Apple has only 7% market share in personal computers worldwide, and that market share is rising. I don’t know what type of new devices will come from Apple, but I know there is more market share to take away from Microsoft‘s (NASDAQ:MSFT) Windows and that the iPhone, as great as it is, probably can be made better. So a wave of upgrades is likely assured for some time to come, resulting in steady earnings growth over the intermediate term.
Credit Cards and Burritos Can Have the Same Quality EPS
MasterCard (NYSE:MA) has had somewhat more erratic EPS growth compared to the four high-fliers discussed here, but this is because of legal settlements. Revenues have shown much steadier growth, and with the leveling of the playing field between MasterCard and main competitor Visa (NYSE:V) — more on that here — it is difficult to see how EPS growth will slow given the low penetration of electronic transactions in emerging markets.
As for Chipotle Mexican Grill (NYSE:CMG), the last of our four high-fliers, there is ample room for growth in the U.S. and especially abroad, where the expansion has just begun to gain momentum. Chipotle has 1,230 restaurants and is looking to open another 150 in 2012. The company successfully tested the ShopHouse Southeast Asian Kitchen concept, and given the massive success it has had with organic made-to-order Mexican food, it will be interesting to see how/if they roll out the new Asian concept aggressively.
Chipotle is not a cheap stock, trading at 39 times next year’s EPS estimates, but there isn’t another major fast food chain that grows as fast, with 23.7% YOY revenue gains in the latest quarter while maintaining healthy operating margins of 15.7%. This growth is unlikely to slow given the international expansion and the exciting new Asian concept.
Ivan Martchev is a research consultant with institutional money manager Navellier & Associates. The opinions expressed are his own. Navellier & Associates holds positions in Baidu, Apple, Chipotle, Lorillard, MasterCard and Visa for its clients. This is neither a recommendation to buy nor sell the stocks mentioned in this article. Investors should consult their financial adviser prior to making any decision to buy or sell the above mentioned securities.