HVT, PIR, WSM: Stocks To Benefit From Rising Consumer Sentiment

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Look around and you will see positive developments about the U.S. economy. According to a poll of investors, analysts and traders conducted by Bloomberg, 69 percent of respondents expressed confidence that the U.S. economy will continue to expand until at least 2015. Survey results may be a bit too bullish as these include respondents who are usually ahead of the curve, nevertheless it says a lot about the current state of the economy and its fundamental robustness. Similar indications came from a joint study conducted by Thomson Reuters and University of Michigan which revealed consumer sentiment moved up to 83.7 in early May from 76.4 in April. This is the highest level for the consumer sentiment index since July 2007. Respondents to Reuters’ survey included households among others and thus the findings are more widely shared as compared to the Bloomberg survey. As such there are many ways to play this bullishness but buying stocks of home furnishing companies such as Haverty Furniture Companies, Inc. (NYSE:HVT) (NYSE:HVT.A), Pier 1 Imports Inc (NYSE:PIR), and Williams-Sonoma, Inc. (NYSE:WSM) is a solid way to make profits.

HVT, PIR, WSM: Stocks To Benefit From Rising Consumer Sentiment

Haverty Furniture Companies, Inc. (HVT) Stores

Consumers are likely to make long delayed improvements in their homes when they feel secure about the overall state of economy. This demand will help Haverty Furniture Companies, Inc. (NYSE:HVT) (NYSE:HVT.A) which sells residential furniture in the middle to upper-middle price ranges through its 122 stores in 81 cities. The stock has doubled in the last 12 months and currently trades at a price earnings multiple of 29.4. This may be a bit on the higher side but strong earnings are expected to follow which is reflected in a forward multiple of 16.1. This practically debt free company is currently quoting at a price by sales ratio of 0.77. The company’s improving financial performance was visible in the latest quarter when profits jumped more than three times to $8.3 million while revenues increased 13.7 percent from the same period a year ago.  Following the results, the stock’s target price has been increased by Raymond James.

Texas based Pier 1 Imports Inc (NYSE:PIR), which is a specialty retailer of decorative home furnishings and gifts, is a similar case. This stock has been moving up steadily over the last year and has accumulated more than 50 percent gains. Fueling this rally has been its  solid continuous growth in top line and bottom line. This streak continued in the latest quarter ended March 2, 2013 during which its revenues grew 15.7 percent to $551.6 million. Although profits dropped, it was due to exceptional, one-time charges. Operating income – a better indicator of its core operations – maintained the momentum and grew to $100.4 million from $78.3 million in the same period last year. Following the results, further upside has opened for the stock which is reflected in Deutsche Bank AG (NYSE:DB) (ETR:DBK)’s target price of $29, up from current market price of $25.

Bigger the Better

With a market capitalization of $5.3 billion, Williams-Sonoma, Inc. (NYSE:WSM) is one of the biggest players in the space. Having gained 51 percent over the last 12 months, the stock trades at a price earnings ratio of 21.7. This may put some risk-averse investors off but high valuation is a direct result of its excellent net profit margin of 9.5 percent. Apart from a traditional retail approach, the company sells products directly to customers through its e-commerce platform which comprises of six websites. This high margin direct-to-customer segment accounted for 46.2 percent of total revenues in fiscal 2012. Thankfully for the company, this segment has been growing at a rapid growth as compared to the retail segment.

Overall, these stocks represent strong potential of capital growth as seen in previous quarters. With an improving economy and increasing household spending, the outlook for these stocks has just gotten better.

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