Sneaky Small Cap Rally – Footwear is Running
Sometimes lousy stocks are overestimated and overbought, but investors are too enamored by the media’s attention given to those companies to notice how weak the opportunity really is. Other times, a handful of off-the-radar stocks with little to no media following are stunning values - in addition to being stocks that actually, you know… go higher. The bulk of the small cap footwear stocks can be found in the second category right now, forming a proverbial ‘perfect storm’ of technical and fundamental bullishness.
Obscure? A little, though it’s not like Wolverine World Wide Inc. (NYSE: WWW), Skechers USA Inc. (NYSE: SKX), Deckers Outdoor Corp. (NASDAQ: DECK), and Iconix Brand Group (NASDAQ: ICON) are completely unheard of. They’re just a little boring…. until you look at the numbers.
The group as a whole looks about as impressive as any group out there, though there are clear leaders.
Take RG Barry Corp. (NYSE: DFZ) for instance… a micro cap with decent margins of 6.9% (that’s pretty strong for retail), and a real P/E of 10.3. The forward looking P/E is the same. Iconix Brand Group is another low-priced name, with a current P/E of 12.0, and a projected earnings multiple of 10.3. Deckers Outdoor Corp. is king of the profit margin for the group though, clearing 11.6% of its revenue as net income. That’s not only solid for a shoe company, that’s more impressive than most any industry’s stock at this point in the economic recovery process.
Growth-wise, LaCrosse Footwear Inc. (NASDAQ: BOOT) is another RG Barry Corp…. totally off the radar, yet stunningly solid. LaCrosse Footwear has earned $0.68 per share over the prior twelve months, but is expected to earn a plausible $1.16 per share by the end of 2011. That’s a 70% improvement in profit over a two-year span.
The list of accolades by individual stock goes on and on.
The technical (chart) aspects are just as attractive. The S&P index that encompasses just the small cap names in the footwear industry has made consistent and persistent progress since last March, outperforming the broad market almost two to one. Yet, there’s still so much more room for this chart to recovery before bumping into prior highs. Many other groups are finding the weight of their gains tough to shoulder, now that they’ve challenged early 2008 peaks; rotation out of those names and into other areas may fuel this rally’s fire.
So if this opportunity with Wolverine World Wide, Skechers USA, and all the other small cap shoe stocks is so great, why isn’t it being touted? Because the market isn’t as efficient as investors like to think. The ‘efficient market’ hypothesis is generally sung by those who underperform the market and can’t figure out why. One doesn’t have to go too far down the company size scale – as was done above – to find opportunities that really are being missed by most everyone.
In any case, its time to turn your attention to 2009’s obscure winners, and possibly 2010’s as well. It’s one of the market’s best-kept secrets.
