) -- Better-than-expected retail sales and consumer confidence stoked investors' optimism on Friday. These stocks hit 52-week highs.
3. J.Crew Group
rose 2% to $45.07. The clothing retailer's shares climbed on news that November retail sales increased 1.3%, twice as much as expected.
: Third-quarter profit more than doubled to $44 million, or 67 cents a share, as revenue increased 14% to $414 million. J.Crew's gross margin widened from 45% to 48%, and its operating margin doubled from 9% to 18%. The company has $247 million of cash and $99 million of debt. Over a three-year period, J.Crew has grown earnings per share 84% annually, on average.
: We rate J.Crew "buy." J.Crew outmaneuvered competitors during the recession and took steps to improve its balance sheet, evident in its $147 million of net cash. The stock has climbed 30% during the past three months. It's more expensive than the average specialty retailer based on all of our valuation measures. The premium is justified by growth expectations.
2. Southwest Airlines
climbed 6.7% to $10.90. The airline's shares are rallying as crude oil prices fall on excess supply.
: Southwest Airlines swung to a third-quarter loss of $16 million, or 2 cents a share, as revenue fell 8% to $2.7 billion. The company's gross margin rose from 20% to 22%, but its operating margin remained steady at 3%. Southwest Airlines has less-than-ideal liquidity, evident in its quick ratio of 0.8. Its 0.7 debt-to-equity ratio is below the industry average, indicating conservative leverage.
: While Southwest Airlines consistently outranks peers in customer satisfaction, the airline industry is undesirable from an investment perspective. We give Southwest a growth score of 1.6 out of 10 and a performance score of 3.3 out of 10. Both figures are less than our "buy"-list averages. The company has a record of inconsistent operating results.
1. General Dynamics
increased 1.5% to $69.01. The aerospace and defense company's shares are benefitting from a shift into undervalued, large-cap stocks.
: Third-quarter profit decreased 10% $572 million, or $1.48 a share. The company's gross margin descended from 20% to 18%, and its operating margin fell from 13% to 11%. General Dynamics has a weak liquidity position, evident in its quick ratio of 0.5. But its 0.3 debt-to-equity ratio is below the industry average, reflecting modest leverage.
: We rate General Dynamics "buy." In addition to superior debt management, General Dynamics offers cheap shares. Its stock is less expensive than the average aerospace and defense peer based on trailing earnings, projected earnings, sales, book value and cash flow. We give the company a financial strength score of 9.5 out of 10, higher than the "buy"-list average.
-- Reported by Jake Lynch in Boston.