How can you tell that September’s been an awful month in the markets
As I write this in Tuesday afternoon trading, 10 stocks are hitting 52-week highs. By comparison, 124 are hitting 52-week lows, 12x as many as the highs.
With three more trading days left in September, two names hitting 52-week highs jump out as stocks to buy for the long haul despite their gains over the past year.
Sometimes, you have to pay more for quality.
It’s All About the Home
My first stock hitting a 52-week high is Williams-Sonoma (WSM), the multi-channel specialty retailer of products for the home. Its brands include Williams-Sonoma, Pottery Barn, Pottery Barn Kids and Teens, West Elm, and several other smaller brands.
WSM stock hit a 52-week high of $157.47 at 11 a.m. EST on Tuesday morning. That is the 14th time it’s hit a new high over the past 12 months.
I’m getting conflicting reasons why Williams-Sonoma stock jumped 11.5% in Monday trading.
Several media sources reported Monday that Los Angeles-based investment firm Leonard Green and Partners had taken a 5% stake in the company through its 2022 buyout fund, Green Equity Investors IX L.P. The buyout fund is Leonard Green’s ninth flagship fund. It raised $14.7 billion for the fund.
The 5% stake is valued at $498.5 million ($155.19). It represents approximately 3.3% of the $14.7 billion raised for its ninth buyout fund. While the fund considers the investment passive, Leonard Green has a long history of investing in retail.
Current investments by the firm include Authentic Brands Group, the New York-based firm that takes ailing brands and reignites their growth. It has over 50 brands, generating over $29 billion in annual sales. Leonard Green also acquired the Container Store in 2018.
Given Williams-Sonoma is a very successful omnichannel retailer with a top-notch CEO in Laura Alber, it’s unlikely that the investment firm would make a play for WSM. However, the significant investment by its affiliated fund assures investors that it remains an excellent long-term investment.
Motley Fool suggested on Monday that the larger-than-normal volume was a case of mistaken identity. The Wall Street Memes token launched simultaneously, prompting some investors to buy its shares.
I find that exceptionally hard to believe.
In the past three months, WSM has traded over one million shares on 27 occasions, including Aug. 23, when more than four million shares traded hands. The news from Leonard Green could have easily generated the 5.4 million shares traded on Monday.
Wall Street Memes. Not so much.
In its latest quarter, while its comparable brand revenue declined -11.9% over Q2 2022, it was up 39.7% over Q2 2019 before the pandemic began. Despite a much more promotional environment, it generated earnings per share of $3.12, well ahead of its guidance and 259% higher than its 87-cent profit in Q2 2019.
Analysts might not like it -- of the 18 covering it, just three rate it a Moderate Buy or Strong Buy (2.78 out of 5) -- but Leonard Green does.
I second that motion.
Value Is in the Eye of the Beholder
Vista Outdoor (VSTO) hit a 52-week high of $32.35 at 9:50 a.m. on Tuesday. It was the sporting goods manufacturer’s 18th time hitting a 52-week high in the past 12 months.
Unlike Williams-Sonoma, analysts appear to like VSTO stock a whole bunch. Of course, only three analysts account for the Moderate Buy (4.33 out of 5) with a $38.50 mean target, 22% higher than where it’s currently trading.
VSTO is up 28% in 2023 and 77% over the past five years. There’s got to be a reason for this move.
In May 2022, the company announced plans to separate its Outdoor Products (Bushnell binoculars, Bell helmets, Camelbak hiking packs, and many other outdoor brands) from its Sporting Products (Remington, Federal, and other ammunition-related businesses).
In Q1 2024, Outdoor Products accounted for 46% of its $693.3 million in revenue, while Sporting Products accounted for 54%.
In August 2023, Vista Outdoor announced that the Sporting Products business would be renamed the Kinetic Group once the separation is completed, trading on the NYSE under the symbol HUNT. The name of the Outdoor Products business has yet to be announced.
The company filed its Form 10 registration statement with the SEC on Sept. 5. Eric Nyman was appointed the new CEO of the Outdoor Products business in July. Nyman joins the company from Hasbro (HAS), where he was President and Chief Operating Officer.
As is often the case in a separation, the value of the business increases as it gets closer to the two divisions becoming independent, separately traded companies.
Until more details about the tax-free spinoff’s share issue ratio are revealed, it probably couldn’t hurt to wait for those details. Given the EBITDA margins of the Sporting Products business are more than double the Outdoor Products, a 1-for-1 ratio is unlikely, but I’m just making a calculated guess.
I wouldn’t own the ammunition business, but if you could only buy one of the two and you don’t have such a hangup, the Sporting Products business is the better long-term hold.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
