Editor’s note: This column is part of our Best Stocks for 2017 contest. Hilary Kramer’s pick for the contest is Newell Brands Inc (NYSE:NWL).
This stock has come a long way, and I think the best is yet to come. A big part of the attraction here is the way NWL stock keeps shuffling its brand portfolio, holding onto everything from Yankee Candle to Sharpie markers and Paper Mate pens while stepping out of underperforming categories like power tools and winter sporting apparel.
For all practical purposes, if a product is relevant to modern life, this company is probably the second-largest player in that global space. Otherwise, management is happy to cash out and try again elsewhere.
NWL Stock Still Growing
That narrative has translated into a pretty smooth ride for the stock. While it took the shares a few weeks to really get moving, they’ve been on a solid run ever since. The dividends certainly haven’t hurt NWL stock’s story, adding up at a rate of first 19 cents and now 23 cents every three months. Downside also looks mighty secure at this point, liberating the chart to reach for bigger and bigger upside as we approach the traditionally volatile third quarter.
NWL stock has already left the broader market in the dust. At the peak a few weeks ago, the stock was up 24% versus the S&P 500, which has scored a respectable 10% year to date. And with easily 70% of our gain here coming in the last three months, the ramp seems to be accelerating.
Wall Street itself is convinced that this company can run another 6%-7% before it needs to catch its breath. With consensus around earnings this year setting the bar another 2% higher in just the last six weeks, the fundamental outlook should be hot enough to fan the fire to at least that level.
That rising heat in the fundamentals really seems to have started feeding on itself once last quarter’s numbers gave Wall Street even better-than-expected performance on May 8. Back then, NWL stock could command at best a 16X current multiple to reflect what looked at the time like anemic 5% annualized growth. Now the forward growth rate is tracking at roughly double that level even though the multiples have only inflated to 23X what management promises we’ll see at the end of the fiscal year.
Factor in a 21% richer dividend and the stock is actually cheaper than it was six months ago.
All that said, management could work harder to guide Wall Street to believe that this year’s growth will continue into 2018 and beyond, but that’s really a matter of the brand shuffle favoring the opportunities that emerge over the next 18 months. As it is, the process of shedding underperforming assets may be close to a climax now. The last deal here — unloading the skiwear business — realized a price of 1.37X annual sales on that unit. The whole company put together is barely trading at 1.7X sales, so there’s not a lot of fat left in the product line worth trimming.
Beyond this point, management must be thinking hard about buying back its own shares as a way to keep the numbers dancing — I doubt Wall Street would look unfavorably at that prospect.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.