One of the lessons investors learn is to never fall in love with a company or it’s stock. But, it’s February. It’s the season of love and I get carried away.
Sweetheart stocks are the ones that consistently go up in value, but aren’t too expensive. In the world of romance, we call these beautiful creatures “low maintenance.” They often -- but not always -- appear in industry sectors that have recently been beaten down.
One way to find these sweetheart stocks is to find companies that have revenues and earnings that are growing over time, while maintaining low price-to-earnings ratios, or P/E.
Here are a couple:
One of the first companies on the list of sweetheart stocks is Discover Financial Services (NYSE:DFS). As a date, the company is the total package: increasing revenue and earnings with a modest P/E.
This may come as a surprise. A lot of the credit card stocks took a beating -- and, indeed, Discover, which is now trading in the upper-$30's, took its shots during that unromantic period of stock market history. But, the company has recovered and is back on the market again. You might call it a rebound.
The last three years of revenue look like this for Discover: $8.2 billion (2010), $8.5 billion (2011), and nearly $9 billion. Meanwhile, we’ve seen earnings per share (EPS) go from $1.22 in 2010 to $4.46 in Nov. 2012. That's quite the leap. Oh, and the P/E is 8.6. That’s hot.
Visa Inc (NYSE:V) is Discover’s biggest competitor, arguably, but with a P/E of over 50, according to Yahoo! Finance, is not quite in the sweetheart status.
I Love You, Now Change
Who wouldn’t want to date someone that people brought jugs of money to everyday? That’s a good description one of Coinstar, Inc. (NASDAQ:CSTR)’s businesses. Coinstar operates vending machines that counts spare change and gives customers vouchers that they can turn in for cash, gift cards, charity, or other forms of compensation. The company takes a tidy percentage off the top for each transaction.
Coinstar also operates the popular RedBox vending machines that provide DVD, BlueRay, and video game rentals. As big video stores disappear, this might be the only old-school way to rent DVDs. And according to a recent news release, Coinstar is starting to distribute event tickets through their machines.
The revenue record for Coinstar, which is trading in the upper-$40s, is a real honey. It jumped from $650 million in 2008 to a little over a billion in 2009. In 2011, the latest figures available, the company brought in more than $1.8 billion.
Meanwhile, the earnings per share has zoomed from $1.20 in 2008 to, according to the latest figures, around $3.61. The company's P/E is hovering in the “perfect” 10 range.