3 Undervalued Consumer Stocks to Buy in February
There’s little doubt, in my mind, that most middle-class and upper-class U.S. consumers are in fairly good shape, making February a great time to find undervalued consumer stocks to buy. For evidence of that assertion, look at the recently reported fourth-quarter results of two major automakers: Tesla (NASDAQ:TSLA) and Stellantis (NYSE:STLA). The latter company’s major brands include Fiat and Chrysler. Then, consider the most recently reported results of the large hotel chain Mariott (NASDAQ:MAR) and the fast-casual dining chain Darden (NYSE:DRI).
Tesla’s top line jumped 37% year-over-year, and its net income climbed 59% YOY. Stellantis’ top line jumped 18% in 2022, while its net profit jumped 26%. As for Marriott, its Q4 revenue rocketed 33% higher, and its bottom line jumped 44% YOY.
Meanwhile, the bears have recently focused on emphasizing the supposedly high debt load of American consumers. But according to the St. Louis Fed, as of the third quarter of 2022, the ratio of U.S. household debt to GDP was 76.82%, slightly lower than in the fourth quarter of 2018, when the same ratio was 77.94%. In the fourth quarter of 2016, the ratio was over 80%.
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With all that in mind, here are three undervalued consumer stocks to buy in February.
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One of America and Europe’s two leading online travel agencies, Expedia (NASDAQ:EXPE), reported very strong fourth-quarter results on Feb. 9. [Booking.com (NASDAQ:BKNG) is the other leading OTA].
Specifically, EXPE’s Q4 top line climbed 15% year-over-year last quarter, while its net income, excluding certain items, jumped 17% YOY. Moreover, its booked room nights increased by 19% to 70.8 million. For all of 2022, Expedia’s revenue climbed 36%, and its operating income soared an incredible 484% to $1.085 billion. In fact, EXPE reported record profits last year.
And importantly, the company reported that its business had improved in January versus Q4, as severe weather in several parts of the U.S. had hurt its Q4 results.
Despite those positive metrics and my belief that the travel surge appears set to go on indefinitely, EXPE’s forward price-earnings ratio is a rather low 12.56, making it one of the most undervalued consumer stocks to buy in February.
Restaurant Brands International (QSR)
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The owner of Burger King, Canada-based coffee chain Tim Hortons, and the Popeye fried chicken restaurants, Restaurant Brands International (NYSE:QSR), also reported impressive Q4 results.
Specifically, its revenue climbed 10% year-over-year to $1.69 billion, while the comp sales of Burger King rose 8.4% and Tim Hortons’ comp sales jumped 9.4%. The company’s Q4 earnings per share came in at $3.14, up from $2.82 during the same period a year earlier.
Also noteworthy is that QSR hired former Domino’s (NYSE:DPZ) CEO Patrick Doyle as its executive chairman in November. In eight years with Doyle as Domino’s CEO, the pizza chain delivered “29 straight quarters of same-store sales increases, systemwide sales growth of $5.6 billion to $13 billion, and more than a 2x bump in home market franchisee profitability.” Further, during his tenure, DPZ stock surged “from $12 in March 2010 to $271 in June 2018.”
Doyle recently told Yahoo Finance that “We have got the best burger in the category [in the Whopper] and that’s a lot to work with. ” But he added that the chain has to improve itself in a few areas, including “speed of service” and “franchisee profitability.”
Doyle has personally invested $30 million in QSR stock. Moreover, he received “stock and options that vest over at least five years that are worth $200 million based on the closing price” of the shares on Nov. 15.
But he will receive those funds only if QSR stock increases ” by about 10% per year over the next five years,” according to the website Restaurant Business. So Doyle is tremendously incentivized to boost QSR’s share price in the medium term and the long term.
Cedar Fair (FUN)
In line with my theory, which I’ve written about for several months, that many amusement parks will benefit from the travel rebound and the hefty price hikes that Disney (NYSE:DIS) has undertaken at its parks, Cedar Fair (NYSE:FUN) reported very good fourth-quarter results on Feb. 16.
The 4% year-over-year increase in net revenue was good but nothing to write home about. However, it generated a net income of $12 million, compared with a $27 million loss in the same period of 2021. Moreover, its EBITDA, excluding certain items, soared 20% YOY to $88 million. And its attendance rose 5% versus Q4 of 2019 to 235,000 guests. Finally, its “out-of-park revenues” soared 27% YOY.
“We achieved the highest levels of revenues, net income and Adjusted EBITDA in Cedar Fair’s history, and returned approximately $220 million of capital to unitholders in 2022, through the reinstatement of our quarterly cash distributions and the implementation of a new unit buyback program,” noted CEO Richard Zimmerman, adding that the company had reduced its debt-adjusted EBITDA level to the same level as in 2019.
Analysts, on average, irrationally predict that the company’s EPS will tumble to $3.31 this year from $5.06 last year. If we assume that the company’s 2023 EPS, after its strong Q4 performance, will come in at $5.50, then the shares’ forward price-earnings ratio is a very attractive 8.2. Moreover, FUN has a dividend yield of 2.7%.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
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