5 Magic Formula Stocks in the Consumer Cyclical Sector

In light of September retail sales posting an unexpected gain in September, five consumer cyclical stocks with high business predictability and meet

Joel Greenblatt (Trades, Portfolio)’s Magic Formula include Whirlpool Corp. (WHR, Financial), Winnebago Industries Inc. (WGO, Financial), Zumiez Inc. (ZUMZ, Financial), Dick’s Sporting Goods Inc. (DKS, Financial) and Thor Industries Inc. (THO, Financial) according to the Magic Formula Screen, a Premium feature of GuruFocus.

September retail sales post unexpected gain

On Friday, the U.S. Census Bureau said real retail sales increased 0.7% during September, outperforming the Dow Jones consensus estimate of a 0.2% decline. The agency also revised the August sales increase to 0.9%, up from the advanced reading of 0.7%.

Natalie Kotlyar, national leader of BDO’s retail and consumer products practice, said that major catalysts for the retail sales growth included high back-to-school and department store shopping. Retail sales were led by strong increases in sporting goods, music, book stores and general merchandise.

As such, investors may find opportunities in consumer cyclical stocks with high business predictability and high Magic Formula rankings. Legendary investor Peter Lynch said that since cyclical stocks may have artificially low price-earnings ratios during the peaks of earnings cycles, high business predictability may alleviate the volatility.

Greenblatt considered two key factors for his Magic Formula: earnings yield and return on capital. Stocks that have high earnings yield and return on capital receive a higher rank.

Whirlpool

Whirlpool (

WHR, Financial) manufactures a wide range of furnishings and fixtures, including laundry appliances, refrigerators, freezers and cooking appliances. GuruFocus ranks the company’s profitability 7 out of 10 on several positive investing signs, which include a three-star business predictability rank, a high Piotroski F-score of 8 and Greenblatt earnings yield and return on capital outperforming more than 83% of global competitors.

Gurus with holdings in Whirlpool include

PRIMECAP Management (Trades, Portfolio) and
Tom Gayner (Trades, Portfolio)’s Markel Gayner Asset Management.

Winnebago Industries

Winnebago Industries (

WGO, Financial) manufactures a wide range of motor homes, towable vehicles and other specialty vehicles and parts. GuruFocus ranks the Forest City, Iowa-based company’s profitability 8 out of 10 on several positive investing signs, which include a 3.5-star business predictability rank, high Piotroski F-score of 8, Greenblatt earnings yield and return on capital ratios that outperform more than 81% of global competitors, and an operating margin that has increased approximately 0.3% per year on average over the past five years.

Zumiez

Zumiez (

ZUMZ, Financial) engages in several retail categories, including apparel, footwear, accessories and hand goods. GuruFocus ranks the Lynnwood, Washington-based company’s profitability 8 out of 10 on several positive investing signs, which include a 3.5-star business predictability rank, a high Piotroski F-score of 8, Greenblatt earnings yield and return on capital ratios that are outperforming more than 70% of global competitors, and an operating margin that has increased approximately 13.80% per year on average over the past five years.

Dick’s Sporting Goods

Dick’s Sporting Goods (

DKS, Financial) retails athletic apparel, footwear and sports equipment. GuruFocus ranks the Coraopolis, Pennsylvania-based company’s profitability 8 out of 10 on several positive investing signs, which include a five-star business predictability rank, a high Piotroski F-score of 8 and Greenblatt earnings yield and return on capital ratios that are outperforming more than 86% of global competitors.

Thor Industries

Thor Industries (

THO, Financial) manufacturers recreational vehicles across several brands. GuruFocus ranks the company’s profitability 9 out of 10 on several positive investing signs, which include a four-star business predictability rank, a high Piotroski F-score of 7 and Greenblatt earnings yield and return on capital ratios that outperform more than 77% of global competitors.