Look for Smooth Sailing Ahead for These 3 Stocks

by Hilary Kramer | February 10, 2014 10:00 am

It’s been a wild ride through the first few weeks of 2014.  As the dust begins to settle from the recent deluge of earnings reports, investors may well be feeling a bit dazed with the volatility seen in broader markets.  Stocks have rocked like boats in a storm on mixed quarterly results, worries over continued Fed tapering (just as the US economy may be slowing), emerging market unrest, and China’s appetite for consumption. 

There are still several companies on deck to report earnings through the next several weeks, but investors should start taking a look at firms that have not only bested expectations – and in some cases pre-announced good results — but also provided positive commentary and guidance for the near term.  That level of confidence speaks to customer and product demand that should transcend any economicbumps in the road. 

Here are three stocks to buy to add to your portfolio:

Gap (GPS[1]):  It’s been rough sledding for retailers, as several clothing chains have seen poor results amid winter weather and cautious consumers.  But  Gap, which owns the eponymous flagship stores, Banana Republic and Old Navy,  has bucked the trend by announcing positive January sales store comps, up 1%, while analysts had forecast a better than 1% drop for the month. That’s its eighth straight positive monthly tally.  The company also pre-announced and boosted its fourth-quarter earnings outlook, at 65 to 66 cents a share in EPS, better than consensus at 59 cents.  More detail will of course come when Gap releases results at the end of the month but I suspect the outlook to be sanguine. 

In the meantime, the company has spent time paring its store base while improving its inventory management technology and e-commerce initiatives, and with roughly 85% of sales from North America, Gap remains relatively insulated from overseas tumult.

It may seem odd to put forth another retail name, with the lingering worries over job growth in the US and the state of consumer spending, which after all drives 70% of the domestic economy.  

But even while acknowledging those concerns, investors can find opportunity, and Costco (COST[2]) is worthy of some attention. The discount warehouse chain has just posted comps for January that was better than analysts thought, at 6% (excluding the impact of gasoline prices) overall.US sales were up 5%, while international sales grew 8% during the same period.  That follows on sales growth that has averaged in the mid-single digits over the past few quarters, a stark contrast to the sales slump that has scarred the US retail landscape during the same period. 

The company’s membership base continues to grow, and was up 9% in the fourth quarter of 2013 – and they continue to spend more of their dollars on Costco’s private label items, which have been taking an increasing percentage of overall sales.     

Expedia (EXPE[3]): The online travel company announced results that beat the Street, as earnings jumped 46% year over year for the December quarter to 92 cents, handily beating the 85 cents in consensus EPS.  Revenues were up 18% to $1.15 billion.  Revenues were boosted by a 25% increase in hotel room nights, and both domestic and international sales grew across all segments.  The company also forecast EBITDA growth for 2014 that outpaced expectations, as demand for corporate travel (via hotel rooms and airline tickets sold online) continues to be strong.

These three companies have stood out amid retail and tech peers, as their most recent data points and guidance run counter to fears that the consumer, and tech, are slowing.  2014 has just begun, but there are encouraging signs that Gap, Costco and Expedia are starting the year off on the right foot.

  1. GPS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GPS
  2. COST: http://studio-5.financialcontent.com/investplace/quote?Symbol=COST
  3. EXPE: http://studio-5.financialcontent.com/investplace/quote?Symbol=EXPE

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