NEW YORK — As the economic recovery sputters, investors looking for a few good stocks may want to follow the money — or rather the TV, the beloved Fender guitar, the baubles from Grandma, the wedding ring.
Profits at pawn shop operator Ezcorp Inc. have jumped by an average 46 percent annually for five years. The stock has doubled from a year ago, to about $38. And the Wall Street pros who analyze the company think it will go higher yet. All seven of them are telling investors to buy the Austin, Texas, company.
Is the economy still just in a soft patch? Will the market rise or drop? Even experts are just guessing. In investing, it's often better to focus on what you can safely predict, even if that safety is found in companies that thrive on hard times. One good bet: The jobless aren't likely to find work anytime soon. And companies profiting from their bad fortune will continue to do so.
Among them:
• Stock in payday lender Advance America Cash Advance Centers (AEA) has doubled from a year ago, to just under $8. Rival Cash America International Inc. (CSH) is up 64 percent, to $58. Such firms typically provide high interest loans — due on payday — to people who can't borrow from traditional lenders.
• Profits at Encore Capital Group, a debt collector that targets people with unpaid credit card bills and other debts, rose nearly 50 percent last year. Encore has faced class action suits in several states over its collection practices. No matter. The stock (ECPG) is up 59 percent from a year ago, to more than $30.
• Stock in Rent-A-Center (RCII), which leases televisions, couches, computers and more, is up 57 percent from a year ago to nearly $32. Nine of 11 analysts say investors should buy it.
The idea of investing in companies catering to the hard-up just might not be palatable to some people. But it is profitable.
Mark Montagna, an analyst at Avondale Partners in Nashville, has developed what he calls a “value retail” index of 11 companies — dollar stores, off-price shops and clothing and footwear chains favored by shoppers looking for deals. The index is up 149 percent since February 2009, which marked the lowest month-end closing value for the S&P 500 during the recession.
Desperation stocks continue to be lifted by a drumbeat of bad news. Consumer spending, adjusted for inflation, has fallen for two months in a row — the first back-to-back fall since November 2009. On Friday, the government reported the unemployment rate rose to 9.2 percent in June, sending stocks in tailspin. Also, one in seven Americans now live below the poverty line, a 17-year high.
“It's been a good year,” says John Coffey Jr., a Sterne Agee analyst, referring to the companies he follows, not the economy. Coffey created a stir late last month when he issued a report arguing shares of Ezcorp (EZPW), which also makes payday loans, were worth a third more than their price and urged investors to buy. The stock rose 7 percent.
Some experts think these down-and-out stocks are just as likely to fall now instead of rise. It's not that they think the recovery will turn brisk and people will get jobs and shop elsewhere. It's that things could get worse.
But not to despair. Nick Mitchell, an analyst at Northcoast Research, says wealthier customers, say those making $45,000, are feeling so strapped that they're starting to rent furniture, too.
Source: http://newsok.com
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