Thinking about skipping the latest gadget, trendiest fashion or hottest toy for your kids’ holiday gifts? Then how about considering stocks of companies that your kids will recognize by their products and services?
Although your kids may not fully appreciate the gift now, years later all could be forgiven. If you pick the right stocks, the proceeds can afford your child a really big present, such as a car or an education.
And even if you don’t have kids, you’ll want these five in your own portfolio:
Take a bite of Apple
The Apple (AAPL) juggernaut continues to roll. Sales for the maker of iPhones, iPads, Macs and iPods increased 67 percent in the fourth quarter of the fiscal year ended Sept. 25. Earnings rocketed 70 percent. And sales rose 52 percent for the fiscal year overall, thanks in great part to the launch of the iPhone 4 and iPad.
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The engine for growth is still in overdrive. Apple’s profit is propelled by the iPhone, which accounts for the largest share of Apple’s sales (43 percent). Sales of the iPhone are outpacing competitor Research in Motion’s BlackBerry and are dominating the smart phone market.
Sales of the iPhone are poised for a big pop next year, if and when Apple begins selling its ingenious gadget through Verizon Wireless. The move would give Apple access to a potential 82 million new customers.
Although Apple’s shares recently traded at around $320 per share, the stock remains attractively valued based on its growth prospects and ironclad balance sheet, said Robert W. Baird analyst William Power. He estimates earnings will grow nearly 30 percent per year over the next three years.
Get your game on
GameStop (GME), the world’s largest video game retailer, offers good value for the shrewd investor who’s ready to pounce. The stock is undervalued because the market thinks it’s lagging the digital age. But GameStop is selling games online and offering digital video game downloads.
Software is performing well, despite a slow recovery in international markets. Same-store sales in the U.S. rose 5.3 percent in the third quarter. Sales of new video games rose 9 percent, while overall U.S. video game sales declined in the quarter. And the company’s focus is selling more-profitable software versus less-profitable hardware.
GameStop is projecting a 19 percent to 23 percent increase in fourth-quarter earnings. Credit Suisse analyst Gary Balter has a 12-month target price of $28. The stock recently traded at around $21 per share.
Tune in for profit
Cash in on your kids’ favorite shows by investing in Viacom (VIA-B). The owner and operator of MTV Networks, Paramount Pictures, VH1, Nickelodeon and Comedy Central is experiencing a renaissance in advertising. Viacom produces popular shows, including MTV’s “Jersey Shore,” Nickelodeon’s “Victorious” and Comedy Central’s “Daily Show With Jon Stewart,” that are scoring high ratings, which Viacom is cashing in on through ad sales.
Ad sales have grown for three consecutive quarters, and Viacom’s executives expect that growth to continue. The company is experiencing strong sales for last-minute commercial spots that carry higher prices. Viacom’s management is optimistic that as the economy recovers, ad sales will rise in 2011. Viacom also expects subscriptions to pick up with the economy.
Fiscal 2010 (the year ended in September) earnings from continuing operations are up 20 percent. The company began distributing a quarterly dividend in the second quarter and resumed its stock-buyback program this fall. Viacom recently traded at around $40.
Wish upon a stock
If you’re buying your kids Disney movies and toys, they might also like company stock as a stocking stuffer. With a rebound in advertising and its theme-park business, Disney (DIS) should continue to generate good earnings in fiscal 2011, which ends in September. Analysts expect earnings to increase 17 percent.
Advertising is picking up across Disney’s broadcast, cable and local TV segments, as the company is seeing strong sales for last-minute commercial spots.
On the movie side, Disney has a strong film slate for 2011, including “Winnie the Pooh,” “Cars 2” in 3D (Pixar), “Thor” and “Captain America” (Marvel), and “Pirates of the Caribbean 4.” These should ensure studio profits, not to mention the cash from accompanying toys, T-shirts and the like.
The company’s theme-park business, which was hit by the recession, is picking up. Disney is seeing solid bookings for the December quarter for its parks, which account for 28 percent of sales. Disney has a strong balance sheet and continues to repurchase shares. The stock recently traded at around $37.
The joy of Pepsi
Put some fizz in your child’s portfolio with PepsiCo (PEP). The snack-food and beverage conglomerate is working to refresh its business by investing more in emerging markets such as China.
However, Wall Street is down on the stock. The company lowered its earnings outlook for 2010 based on greater-than-anticipated investment in emerging markets, especially China. But Wall Street’s thinking is too short term.
Pepsi’s investment is a smart move, because consumers in emerging markets carry less debt than those in many developed countries and are growing wealthier. Expanding into these markets will also help Pepsi offset any weakness in the U.S. and Western Europe, where consumers are cutting back their spending.
This year Pepsi acquired its two largest North American bottlers, which should help it adapt to changing consumer tastes and get new products to market faster. It will also help it better control costs, ultimately bolstering profits.
Analyst Carlos Laboy, of Credit Suisse, said Pepsi is one of the cheapest consumer stocks he covers and trades below competitors. The stock, which yields 3 percent, recently traded at around $65.
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