Blue-light special, household-products aisle.
Some analysts and investors say a selection of consumer-products stocks is looking pretty cheap, following a handful of gloomy earnings forecasts. The idea is that some of the companies fell too far after delivering bad news, so they deserve a second look from investors. Others just got caught in the downdraft. Here are the most mentioned buying opportunities by four analysts and one investor. (None of the firms mentioned have done recent underwriting for the stocks recommended by their analysts.)
First up, the companies that have recently warned that they won't meet expectations and were subsequently beaten up to the point where they look inexpensive:
delivered a bucketful of bad news back in August, when it reported a drop in fiscal fourth-quarter sales. It also said it would take additional charges and that its profit would be lower than expected in the first half of fiscal 2000.
The company attributed the earnings shortfall in part to weak sales at recently acquired
. Since then, the shares have fallen about 19%, leaving them about 24 times the fiscal 2000 earnings consensus of $1.77 a share.
"They still have something to prove," but the stock looks cheap for investors with a longer time horizon, says Jim Dormer, analyst with
Morgan Stanley Dean Witter
said Sept. 29 that, while things look OK for the third quarter, fourth-quarter earnings will be about 56 cents per share, not the 63 cents expected by analysts. The stock has gotten about a 30% facial since the announcement.
Robert Izmirlian, analyst with
Standard & Poor's
who rates Avon accumulate, says the company has given a "worst-case scenario," and that things may turn out better than anticipated. Meantime, the stock is cheap, Izmirlian says. Later in 2000, Avon will start facing easier comparisons with the year before, when woes in Latin America began to chip at profit.
While the company still faces challenges in revving up its U.S. business, Catherine Lewis, a Morgan Stanley Dean Witter analyst who rates the stock outperform, says cost-cutting initiatives seem on target. "They should be able to hit their numbers," Lewis says.
There are also the innocents -- companies whose shares have been dragged down by the sector's weakness, despite, in some cases, their own positive earnings forecasts:
shares have fallen 10% since Sept. 8 "on no change in fundamentals," says Dormer at Morgan Stanley. While still trading at about 32 times 2000 earnings estimates, "it has the greatest likelihood of exceeding expectations," he says. In a recent research report,
analyst Heather Hay said that third-quarter results "appear to be at or better than plan, with volume up mid-single-digits" on the strength of its global brands and cost savings. She rates the company a near-term accumulate and long-term buy.
, too, looks cheap. Its shares have come down about 7% since early September and now trade near 55.
"They can stand out from the crowd this quarter," says Linda Lieberman, a
analyst who rates the company's shares attractive and says the recent pullback makes for, you guessed it, a buying opportunity. She's looking for earnings gains from cost cuts, better results from European diapers and new product lines in personal care. S&P's Izmirlian, who rates the shares a buy, points to the stock's multiple of 17, based on 2000 earnings estimates.
, while not dirt-cheap at 45, or some 38 times 2000 earnings estimates, has its loyal fans. The company said recently it's comfortable with analysts' fiscal first-quarter earnings estimates of 31 cents per share. This week it was upgraded by
BancBoston Robertson Stephens
. Steven Ralston, an investment manager at the
BlackRock Large-Cap Growth fund, which holds Lauder shares, says the recent drop makes for a "good entry point" for investors spooked by the high of 56 1/2 seen earlier in the summer. (He wouldn't comment on whether BlackRock was buying.)
on anyone's shopping list was
. The company said last week it won't sell itself, though it will seek buyers for a few brands. It also predicted more restructuring charges and an operating loss during the year, in part because retailers are still working off excess goods from their shelves. On the surface, Revlon shares are certainly cheap -- the stock now trades at less than 11, down from around 32 this summer. But there's still plenty of uncertainty hovering around the company.
"They've got $1.8 billion in debt, and that's a lot," says S&P's Izmirlian. And while he says the product lineup is improving, Revlon still has got to unload a lot of inventory and beef up advertising. Things could get even worse before they get better.
And keep in mind: Sometimes value, like beauty, is only skin deep.