It’s the most wonderful time of the year, which means children of all ages are busy mailing their letters to Santa Claus and parents are searching for the best bargains to fill stockings.
Despite the uncertainty caused by rising inflation and new strains of the Covid-19 virus this year, the National Retail Federation reported that consumers are still looking for some holiday cheer as it expects seasonal sales to increase between 8.5% and 10.5% from 2020 numbers.
As such, value investors may still find some treasures among consumer cyclical companies this Christmas. While these companies have been impacted by the pandemic due to disruptions in the retail space and supply chain shortages, their products remain popular and in demand among children and adults alike.
According to GuruFocus’ Aggregated Portfolio, leisure and luxury stocks that are popular among gurus as of the end of the third quarter include Tapestry Inc. (TPR, Financial), Mattel Inc. (MAT, Financial), Peloton Interactive Inc. (PTON, Financial), Signet Jewelers Ltd. (SIG, Financial) and Hasbro Inc. (HAS, Financial).
Tapestry
With a combined equity portfolio weight of 3.43%, 12 gurus are invested in Tapestry (TPR, Financial).
The New York-based luxury goods retailer, which owns fashion brands like Kate Spade, Coach and Stuart Weitzman, has an $11.23 billion market cap; its shares were trading around $40.53 on Friday with a price-earnings ratio of 13.97, a price-book ratio of 3.56 and a price-sales ratio of 1.92.
The GF Value Line suggests the stock is modestly overvalued currently based on historical ratios, past performance and future earnings projections.
GuruFocus rated Tapestry’s financial strength 5 out of 10. Although it has adequate interest coverage, the Altman Z-Score of 2.76 indicates the company is under some pressure since its assets are building up at a faster rate than revenue is growing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s financial strength fared slightly better with a 7 out of 10 rating, driven by margins and returns on equity, assets and capital that outperform a majority of competitors. While the high Piotroski F-Score of 8 out of 9 suggests operations are healthy, Tapestry has a low predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Tapestry, Pioneer Investments has the largest holding with 0.17% of its outstanding shares. Other top guru shareholders include Ray Dalio (Trades, Portfolio), John Rogers (Trades, Portfolio), Robert Olstein (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Richard Snow (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Scott Black (Trades, Portfolio) and John Hussman (Trades, Portfolio).
Mattel
Holding a combined portfolio weight of 10.98%, 11 gurus have positions in Mattel (MAT, Financial).
Headquartered in El Segundo, California, the manufacturer of Barbie, Fisher-Price, Hot Wheels and American Girl toys has a market cap of $7.4 billion; its shares were trading around $21.02 on Friday with a price-earnings ratio of 9.35, a price-book ratio of 5.6 and a price-sales ratio of 1.41.
According to the GF Value Line, the stock is significantly overvalued currently.
Mattel’s financial strength was rated 4 out of 10 by GuruFocus. In addition to being weighed down by weak interest coverage, the Altman Z-Score of 2.77 indicates the company is under some pressure since revenue per share has declined in recent years. Value is being created, however, since the ROIC eclipses the WACC.
The company’s profitability scored a 6 out of 10 rating, driven by strong margins and returns that top a majority of industry peers. Mattel also has a high Piotroski F-Score of 7 and a one-star predictability rank.
With a 13.21% stake, PRIMECAP Management (Trades, Portfolio) is the company’s largest guru shareholder. Mason Hawkins (Trades, Portfolio), Rogers and the T Rowe Price Equity Income Fund (Trades, Portfolio) also have significant positions in Mattel.
Peloton Interactive
Peloton (PTON, Financial) is held by 10 gurus with a combined equity portfolio weight of 11.09%.
The New York-based company known for its exercise bikes and treadmills has a $13.97 billion market cap; its shares were trading around $41.60 on Friday with a price-book ratio of 8.44 and a price-sales ratio of 3.2.
While the stock has gained at least 50% since its initial public offering in 2019, shares have tumbled nearly 80% year to date.
GuruFocus rated Peloton’s financial strength 5 out of 10 on the back of a high Altman Z-Score of 3.11 that indicates it is in good standing.
The company’s profitability did not fare as well, scoring a 1 out of 10 rating as a result of negative margins and returns that underperform at least half of its competitors. Peloton also has a low Piotroski F-Score of 2, suggesting operations are in poor shape.
Baillie Gifford (Trades, Portfolio) is Peloton’s largest guru shareholder with a 9.38% stake. Chase Coleman (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Philippe Laffont (Trades, Portfolio) and Catherine Wood (Trades, Portfolio) also have large holdings.
Signet Jewelers
Nine gurus have positions in Signet Jewelers (SIG, Financial), representing a combined weight of 4.41%.
Headquartered in Bermuda, the world’s largest retailer of diamond jewelry, which has several well-known brands under its umbrella, including Kay Jewelers, Zales and Jared The Galleria of Jewelry, has a market cap of $4.36 billion; its shares were trading around $82.04 on Friday with a price-earnings ratio of 7.25, a price-book ratio of 2.83 and a price-sales ratio of 0.67.
Based on the GF Value Line, the stock appears to be significantly overvalued currently.
Signet’s financial strength was rated 5 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the Altman Z-Score of 3.09 indicates the company is in good standing. The ROIC also exceeds the WACC, so value creation is occurring.
The company’s profitability scored a 6 out of 10 rating. While its margins are in decline, Signet’s returns top a majority of its industry peers. It also has a high Piotroski F-Score of 7 and a one-star predictability rank.
Of the gurus invested in the stock, Ken Heebner (Trades, Portfolio) has the largest position with 1% of its outstanding shares. Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Steven Cohen (Trades, Portfolio), Grantham, Greenblatt, Chuck Royce (Trades, Portfolio), Hussman, Ainslie and Barrrow, Hanley, Mewhinney & Strauss also own Signet.
Hasbro
Accounting for a combined equity portfolio weight of 1.92%, eight gurus are invested in Hasbro (HAS, Financial).
The Pawtucket, Rhode Island-based toymaker, which owns the Play-Doh, Nerf, My Little Pony and Monopoly brands, among others, has a $13.7 billion market cap; its shares were trading around $99.36 on Friday with a price-earnings ratio of 30.47, a price-book ratio of 4.54 and a price-sales ratio of 2.23.
The GF Value Line suggests the stock is fairly valued currently.
GuruFocus rated Hasbro’s financial strength 4 out of 10. While debt-related ratios are underperforming versus the industry and its own history, the company has sufficient interest coverage. The Altman Z-Score of 2.77, however, suggests it is under some pressure currently since the Sloan ratio is indicative of poor earnings quality. Value is also being created since the ROIC surpasses the WACC.
The company’s profitability fared better, scoring a 7 out of 10 rating. Although the operating margin is in decline, Hasbro has strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 5, meaning operations are typical for a stable company. It also has a one-star predictability rank.
With a 0.24% holding, Pioneer Investments is Hasbro’s largest guru shareholder. Other top guru shareholders are Grantham, Simons’ firm, Snow, Greenblatt, Paul Tudor Jones (Trades, Portfolio), Keeley-Teton Advisors, LLC (Trades, Portfolio) and Dalio.
Other popular picks
Additional leisure and luxury companies that are broadly held by gurus as of the third quarter include Pool Corp. (POOL, Financial), Six Flags Entertainment Corp. (SIX, Financial), Brunswick Corp. (BC, Financial), Movado Group Inc. (MOV, Financial) and SeaWorld Entertainment Inc. (SEAS, Financial).
