Why Harman International and Michael Kors Are the 2 Top-Performing Consumer Goods Stocks in 2014

The consumer goods sector is down in 2014, but shares of Harman and Michael Kors are bucking the trend big time, as they're up 30% and 22%, respectively.

Feb 24, 2014 at 7:47PM

Harman International (NYSE:HAR), an infotainment systems and audio equipment maker, and Michael Kors Holding (NYSE:KORS), a retailer and wholesaler of upscale apparel and accessories, are bucking their sector's trend. While the consumer goods sector is down about 4% year to date in 2014, making it the worst-performing sector, these stocks have soared 30.1% and 21.6%, respectively, through late-afternoon trading today.

Harman and Kors have not only cruised past the performances of all their consumer goods brethren on the S&P 500, but also past most of the other stocks on the index. Their returns rank them No. 6 and No. 14, respectively, of the 500 top companies populating the index. (I'm excluding alcoholic beverage producer Beam, which holds the No. 10 spot, because it's being acquired.) 

Before we look at what's driving the prices of these winning consumer products companies in 2014, let's get a better perspective on their performance by moving our time lens out to one year. As this chart shows, both have also significantly outperformed the market in the past year.

HAR Total Return Price Chart

Data by YCharts

Harman International: up 30.1% YTD 2014
While Harman's stock price hasn't yet hit its peak level reached in the mid-2000s, it's come blaring back since being nearly silenced during the Great Recession, and is up 525% for the five-year period.

The company's strong performance in 2013 is continuing in 2014, thanks to crushing analysts' estimates and raising full-year guidance when it reported fiscal second-quarter 2014 results for the period ending Dec. 31, on Jan. 30. This makes the company four-for-four in earnings beats during the last year. 

Revenue grew 26%, to $1.33 billion, topping the consensus of $1.24 billion, while adjusted earnings soared 85%, to $1.09 per share, beating analysts' estimates of $0.95. Harman raised its full-year earnings outlook to $4.16 a share on revenue of $5.1 billion, well ahead of EPS of $3.98 on $4.85 billion that analysts were forecasting.

The company's much-better-than-expected results were driven by gains across all three of its business segments, due primarily to a rebounding auto market, as well as a strengthening of the economy, in general. Sales in Harman's infortainment segment, which provides premium infotainment systems to automakers for installation in new vehicles, increased 28%. This segment is Harman's largest, and accounted for 52% of revenue in the quarter.

Revenue in Harman's lifestyle business, which accounted for 32% of quarterly revenue, rose 16%, while sales in its professional business, accounting for 16% of revenue, leapt 45%. The lifestyle segment provides audio and electronic systems for vehicle, home, and mobile applications. Harman's professional segment provides audio systems for public places and to broadcasters, as well as lighting systems for commercial and entertainment occupancies.

With a price run up like Harman's stock experienced, the stock must have a high valuation, right? It's not cheap, but it's reasonably priced based upon its recent growth. And given its string of recent wins with automakers for its infortainment systems, there's reason to believe strong growth will continue. The stock has a forward P/E of 19.40, and a five-year price-to-earnings-to-growth, or PEG, of 1.0.

Harman's stock sports a 2.5 beta, meaning it's two and half times as volatile as the overall market; so it's not for all investors. However, investors who can stomach volatility might want to further explore Harman. Competition in the hot auto infotainment space is intensifying, so investors should closely monitor Harman's profit margin.

Michael Kors Holdings: up 21.6% YTD 2014
While Michael Kors describes itself as a "lifestyle brand for aspiring jet-setters," there's been nothing aspiring about the company's stock, as it's jetted 259% since its IPO in Dec. 2011.

Kors spectacular performance since going public shows no sign of letting up, as it once again zoomed by analysts' quarterly estimates when it reported its fiscal third-quarter results on Feb. 4. This marks the third consecutive quarter Kors has topped estimates.

Revenue grew 59%, to $1.0 billion, easily beating the $860 million analysts were expecting, while earnings soared 73.4%, to $1.11 per share, crushing the consensus estimate of $0.68. Comparable-store sales (stores open for at least 13 months) increased a phenomenal 27.8%.

Kors experienced significant growth across all three of its segments, as well as both its North American and international markets. According to CEO John Idol:

Revenue in North America grew 51% and comparable store sales increased 24%, with performance driven primarily by accessories and watch offerings. In addition, our North America wholesale segment generated another quarter of strong sales growth, particularly in our accessories and footwear categories, and we continued to benefit from shop-in-shop conversions in department stores. In Europe, revenue grew 144% in the third quarter, with exceptional comparable store sales growth of 73%, which we believe was driven by growing brand awareness and demand across regions. Lastly, in our licensing segment, revenue increased 59%, with continued demand in watches and eyewear.

Kors handbags have been especially hot sellers in its accessories category, and have largely been responsible for delegating rival Coach's stock to coach class in recent years.  

Michael Kors remains a very attractive stock. Kors status as the "it" brand is showing no signs of slowing down, as the company continues to expand, particularly internationally. Investors can also play the Kors-mania card by investing in Fossil, as Fossil has been the exclusive licensee of Kors-branded watches since 2004, and the jewelry licensee for a few years. 

Kors has had a phenomenal run, but this is our top stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report, "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends Michael Kors Holdings. The Motley Fool owns shares of Michael Kors Holdings. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

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.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

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. It's also featured on several dozen 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 ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers