3 Pullbacks You Should Consider Investing In

GNC, Whole Foods, and L Brands have pulled back significantly from their respective highs and should be considered by all investors.

Jan 22, 2014 at 5:00PM

With the market trading near all-time highs, it's not always easy to find new investments, which can be frustrating. However, sometimes the market provides pullbacks in certain stocks, that may offer decent opportunities. This is exactly what has happened to three of the world's largest companies, so let's take a look and see if one could fit your portfolio's needs.

The nutrition giant
GNC Holdings (NYSE:GNC) is the owner and operator of GNC, or General Nutrition Centers, worldwide. It offers vitamins, nutritional products, and dietary supplements, as well as fitness equipment and accessories. The company currently operates 8,444 company-owned and franchised locations in 54 countries, giving it one of the largest footprints in the nutrition industry.

Gnc Investor Presentation

Source: GNC Investor Presentation.

The stock has been on downward slope since reaching its 52-week high of $60.98 on Nov. 27. The decline has happened for no legitimate reason; there have not been any earnings released, major downgrades of the stock, decreased outlook, secondary offerings, or insider selling, so it appears that investors are simply taking profits. There has, however, been a recent report alleging that vitamins and supplements have no true benefits, but I do not believe this will stop Americans from continuing to buy them; if this gains more traction and there is more of a public outcry, then I would revisit the allegations and take it more seriously.

Screen Shot

Source: Yahoo! Finance.

GNC has fallen nearly 13% from its high and now trades at just 19.5 times its trailing-twelve-months earnings of $2.72. It's also trading at only 15.3 times its projected earnings of 2014. Since going public in 2011, GNC has traded at an average multiple of 22.06, meaning it is trading at a steep discount today.

I believe the stock could command a fair multiple of 20 throughout 2014, meaning it could trade upwards of $69, representing a 30% gain from current levels. I think GNC is one of the best investment opportunities in the market today, and you should consider looking deeper.

The face of healthy eating
America's transition to healthy eating has been led by Whole Foods Market (NASDAQ:WFM). This company is the leading retailer of natural and organic foods in the United States and was the first national "Certified Organic" grocer. It currently operates 367 locations in the U.S., Canada, and the United Kingdom.

Wfm Company Site

Source: Whole Foods 

The decline in Whole Foods' stock began after a weak earnings report on Nov. 6; where earnings beat by a penny, but revenue missed by $60 million. Negativity probably would have been minimal if this was just a mixed quarter, but the company then cut its outlook for 2014.

Earnings are now expected to be in the range of $1.65 to $1.69 per share on revenue growth of 11% to 13% versus previous estimates of $1.69 to $1.72 per share on revenue growth of 12% to 14%. All these factors caused Whole Foods to fall 8% after hours and 11.18% in the next trading session. Fortunately, or unfortunately, the weakness did not stop there.

Screen Shot

Source: Yahoo! Finance.

Today, the stock sits at more than 20% below its 52-week high of $65.59 reached on Oct. 28. The mixed report was acceptable and the reduced outlook was minimal, so a large sell-off of 20% is a bit extreme. I believe Whole Foods will continue its expansion efforts and deliver on the reduced earnings in 2014, slowly driving its shares toward its 52-week high. If this happens, investors would accumulate a solid return of roughly 25.4%, which I believe will far outperform the overall market.

A well-know secret
Arguably, the most popular women's brand in the United States is Victoria's Secret and is owned by L Brands (NYSE:LB). The company also owns Victoria's Secret PINK, Bath and Body Works, La Senza, and Henri Bendel, giving it exposure to several areas within the industry. Being home to several popular brands gives L Brands an advantage in today's very competitive retail environment.

Lb Fool Flickr Stream

Source: Fool Flickr Stream.

L Brands' stock began declining shortly after reaching its 52-week high on Dec. 2 and it kept falling for several reasons. First, on Dec. 5, the company reported that same-store-sales declined 5% in November compared to a 5% increase the year before. This did not cause a major hit, but it was enough to start the decline.

Second, nearly the entire retail industry was hit after investors realized the 2013 holiday season's promotional environment was more extreme than it had ever been before, which caused margins to implode. Finally, and worst of all, L Brands cut its fourth-quarter outlook on Jan. 9 and now expects to earn $1.60 per share versus previous estimates of $1.67 to $1.82.

Screen Shot

Source: Yahoo! Finance.

After the steep decline, L Brands now sits over 17.5% below its 52-week high of $67.16. At current levels, the stock trades at just 19.8 times trailing-twelve-months earnings of $2.79 and 18.2 times 2014's earnings estimate of $3.03. L Brands has a five-year average price-to-earnings multiple of 21.4, meaning it is inexpensive at current levels.

However, even with it being inexpensive, you should still wait until after its next earnings report to consider initiating a position. With that said, it might make a great addition to any portfolio looking for retail exposure. 

The Foolish bottom line
GNC, Whole Foods Market, and L Brands have pulled back significantly from their respective highs. All three make strong cases for investment and pay healthy dividends, so each could easily outperform the market. Keep a close eye on these three industry giants, and consider initiating a position today or on any weakness going forward.

More great stock picks from The Motley Fool
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Joseph Solitro owns shares in Whole Foods Market. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers