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5 Santa Stocks for Your 2012 Portfolio - views
BALTIMORE (Stockpickr) -- Christmas is right around the corner -- and these “Santa Stocks” stand to benefit.
The companies behind this season’s most popular gifts are poised to dramatically impact revenues at the companies that sell them. According to the American Research Group, shoppers plan on spending an average of $646 each this holiday season, a number that’s essentially flat from 2010’s spending figure. But some firms stand to benefit from holiday spending disproportionately.
That’s because while a rising tide of consumer spending is sure to lift all ships, the companies with the hottest-selling products this Christmas are due for a bigger piece of the pie when they announce their earnings in the coming quarter.
So which stocks are seeing their wares fill Santa’s sack? Here’s a look at five “Santa Stocks” investors should be keeping an eye on in 2012.
As the world’s largest online retailer, Amazon.com (AMZN) already benefits from holiday spending. The increased popularity of expedited shipping services, such as Amazon Prime, has made Amazon more of a go-to retailer for smaller items as well as the books and electronics that the firm has always been known for. This year, though, Amazon’s hot-ticket item isn’t being manufactured by someone else; it’s the company’s own Kindle Fire.
Amazon’s Kindle has been a popular e-book device with potentially transformational implications for Amazon’s business. The device is essentially a sunk cost into book consumption through Amazon’s Kindle store, a model that should help the Seattle-based firm increase customer stickiness and generate substantial recurring sales -- books, after all, can essentially be thought of as consumables.
In the near-term, investors should expect the Kindle to harm margins. Because Amazon is selling the devices as loss leaders, quarters with hefty Kindle sales will cut into profitability, but that should eventually reverse and those new devices’ owners start buying content. Already, the Fire is proving popular as a gift item this year -- investors should be watching customer numbers in the near-term, not margins.
It’s hard to talk about hot gifts without mentioning Apple (AAPL). The $370 billion consumer electronics firm lays claim to a slew of popular (if bigger-ticket) gift times that include the iPad 2 as well as various incarnations of the iPod. Unlike Amazon, Apple’s products aren’t loss leaders -- in fact, it’s quite the opposite.
While Apple’s iTunes and App Store marketplaces are fuelled by its user base, those businesses are still viewed as secondary to the hardware and software that the firm creates. That’s part of the reason for the hefty 24% net margins that Apple is able to take home at the end of each quarter.
One of the most compelling trends at Apple is the integration of devices across its iOS and Macintosh lines. Because content on one device is more accessible than ever on other devices owned by the same user, the firm makes a compelling case for consumers to spend money through its storefronts.
From a valuation perspective, hot products and a mountain of cash still make Apple look cheap relative to peers right now.
Video game maker Activision Blizzard (ATVI) is having a fairly volatile year in 2011. While shares have only slid around 4% year-to-date, that performance comes following 12 months of large price swings from gains to losses. Now, the question is whether this firm’s new blockbuster game can lift shares in 2012.
Call of Duty: Modern Warfare 3 is one of the most popular games of the season, bringing in more than $1 billion in sales in the first 16 days after the game’s release on November 8. Better still is the fact that CoD isn’t a standalone; it’s just the latest in a successful franchise that should have more games in its future. Activision Blizzard has nearly perfected the franchise model, with brands such as World of Warcraft and Diablo in its product portfolio. That focus on popular franchises should keep sales strong for future releases without the effort needed to successfully release a standalone game.
As exciting as CoD is for Activision’s holiday numbers, investors should also be keeping a close eye on World of Warcraft. With around 12 million players paying monthly subscription fees to play the online multiplayer game, WoW generates massive recurring cash flows with high consumer stickiness -- players have a huge sunk time cost in their characters, so they’re less likely to switch to a rival title.
With a number of new releases in its pipeline next year, investors should keep an eye on Activision in 2012.
For more on video game stocks, check out yesterday's "Forget Zynga -- Buy These Stocks Instead."
It may seem surprising that TV network giant CBS Corporation (CBS) made this list of “Santa Stocks,” but one of the firm’s divisions actually lays claim to one of the most heavily-gifted products of the year. CBS owns book publisher Simon & Schuster, the publisher behind Walter Isaacson’s Steve Jobs. The book, despite its late October release, is the best-selling title of 2011 according to Amazon.com.
While one title does not a publisher make, the jaw-dropping success of Isaacson’s book should shine a bit of a spotlight on CBS’ Simon & Schuster, particularly after concerns that the popularity of e-books would lead to shrinking margins for traditional publishers. CBS’ network TV operations still bring in the lion’s share of the firm’s overall sales.
CBS shows up on recent lists of Merrill Lynch's 10 Favorite Stocks for 2012 and 5 Mid-Cap Stocks That May Outperform in 2012 and Beyond.
Educational toy maker LeapFrog (LF), one of TheStreet Ratings' top-rated recreation stocks, has had a stellar fourth quarter for shareholders -- the firm’s stock has rallied more than 78% in the last three months alone. That success is thanks largely to the popularity of LeapFrog’s new LeapPad Explorer product, an electronic tablet that lets kids play educational games. The LeapPad has been smashed by demand since the device went on pre-order earlier this summer, and the company remains unable to produce the supply to satisfy buyers. That’s a good problem for a toy maker to have.
LeapFrog’s products have long been popular with parents because of their educational bent – now the firm is taking advantage of the tablet craze to ramp up its sales. A growing installed base should also generate substantially increased sales on LeapFrog’s App Center, an online store where parents can purchase content for the LeapPad and other devices.
For a company that’s historically run into challenges in meeting analysts’ expectations, the success of the LeapPad is especially significant. We’ll see if LF can ride the momentum into 2012.
To see these stocks in action, check out the at Santa Stocks 2011 portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.