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Stock Charts Review: DJS, HVN, WOW & DMP.

March 19th, 2012 · Greg Atkinson · 4 Comments

An extended stock market market downturn such as the one we are experiencing now provides long term investors with an opportunity to gauge how well companies have been able to deal with harsh economic conditions.  So today let’s have a look at four consumer spending related Australian listed companies and see how they have fared over the last five years.

The first stock  is David Jones – a company that owns & operates an upmarket chain of department stores and was founded way back in 1838, so the company has certainly seen its fair share of difficult trading periods.

We would expect to see reflected in its share price  a major correction during 2008, a recovery as the stock market bounced off the market low in 2009 but after that things will probably get a little hazy.

David Jones Ltd (ASX:DJS) 5 year Stock Price Chart

djs_5_year_stock_chart_mar_12

As we can see from the chart above, the David Jones (DJS) share price basically slumped during 2008, rallied during 2009 but has since struggled and has slipped back down near it’s multi-year low.  The major reason for this is that consumers are in recession spending mode. This has also hit David Jones major rival Myer and many other companies in the retail sector.

Of course this is nothing new to the thousands of small business owners who have been struggling for years and for whom the economy is already basically in a recession.

I don’t expect 2012 will be too kind to David Jones or the other retailers, although they might start to see some light at the end of the tunnel in the later half of this year.

Another stock which gives us an insight into how consumers are feeling is Harvey Norman Holdings, although we need to be cautious about reading too much into this chart as HVN have significant overseas operations which are putting a drag on the share price.  I wrote a little about this back in 2009 in: Stockwatch: Harvey Norman Holdings Ltd (HVN)

Harvey Norman Holdings (ASX:HVN) 5 Year Stock Price Chart

hvn_5_year_stock_chart_mar_12

Clearly the last few years have not been good to Harvey Norman and the stock price trend for the last 5 years doesn’t look very promising.  HVN are also having to deal with online sales via overseas websites but that’s called competition and I don’t recall Harvey Norman being too worried about using their bulk buying power to drive many small retailers out of business over the years.  Online sales are here to stay so retailers are going to have to adjust.

Basically the HVN share price reinforces the view that consumer spending is in the doldrums and as with DJS,  I don’t expect this year to be particularly kind to the company or its share price.

Now let’s look at a defensive type stock – Woolworths.

Woolworths Ltd (ASX:WOW) 5 Year Stock Price Chart

wow_5_year_stock_chart_mar_12

We can clearly see that the WOW stock price has pretty much performed as we would expect a defensive type stock to perform.  Discounting the dash above $34 in late 2007, the share price is only slightly lower than it was before the GFC struck and has held up pretty well during a time when the Australian stock market has experienced some pretty major swings up & down.

When I look at this chart I simply note that although the share price has held up well it still below trading at a fairly subdued level, and so it appears even supermarket operators are experiencing tougher trading conditions.

But there is always a few stocks that don’t fit the script and one of those is Domino’s Pizza Enterprises – a stock I felt was a little pricey back when it was around $6.00!

Domino’s Pizza Enterprise (ASX:DMP) 5 Year Stock Price Chart

dmp_5_year_stock_chart_mar_12

It seems when times are tough people really do like their pizza!  Of course this is being over simplistic but my expectation a few years ago was that DMP shares would trade much like WOW shares – i.e. move in a fairly narrow range & do nothing spectacular either in terms of going up or down in value.  Clearly I was wrong.

Obviously the management team at Domino’s Pizza have done well in executing their business plan over the last few years, but the stock still looks a touch pricey to me and personally I wouldn’t buy into it even if it fell back to $6.00.

What Domino’s does show however is that some companies are able to buck the trend and grow when others are struggling.  These are the types of stocks investors like to pounce on but they are very often hard to spot until it’s too late to gain much from the run up in their share price.

Of the four stocks above the one which I am keeping an eye on is Woolworths as I feel there is potential for the WOW stock price to get back near $30.00 over the next few years.  If this were to happen then it would turn out to be a nice little earner if you also factored in the dividends.

But please remember I urge all readers to do their own research and seek professional investment advice if required.

Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital & a Director at Eco Marine Power. He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp


4 responses so far ↓

  • 1 Greg Atkinson // Mar 21, 2012 at 8:40 am

    Well it certainly isn’t looking good for David Jones this year and according to a report in The Australian today “The troubled department store chain said it expected its net profit for fiscal 2012 would drop by 35 to 40 per cent.”

    Source: David Jones reports 20pc slide in H1 profits, warns of full-year hit

  • 2 Peter // Mar 23, 2012 at 2:16 pm

    Solomon Lew’s Premier is not doing too well either. Neither is Kathmandu.

    The clear standouts: JB Hifi and Oroton. Management matters a lot in retail.

  • 3 Greg Atkinson // Mar 23, 2012 at 2:35 pm

    Peter I saw some comments today in the news from Solomon Lew – he is not happy with what the RBA has been doing and basically says rates are too high. I tend to agree with him actually.

    Yes management does matter, that is why I am little surprised that HVN has hit such a rough patch. Perhaps they should have kept the focus on their Australian operations?

  • 4 Greg Atkinson // Apr 22, 2012 at 8:31 am

    It looks like Woolworths is still struggling to keep up with Coles. According to an article in The Australian today:

    SUPERMARKET chain Woolworths has reported its worst quarterly sales result in 13 years, blaming cool summer weather and plummeting prices for fresh produce for its continued underperformance of arch rival Coles.

    The Woolworths group, which also includes Big W, New Zealand supermarkets, a majority stake in hotels group ALH, hardware chain Masters and Dick Smith Electronics, reported total sales of $14.072 billion for the 13 weeks to April 1, up 3.8 per cent from the previous third quarter.

    Sales from the company’s largest revenue and earnings generator, the Australian food and liquor division, rose by 2.9 per cent to $9.4bn.

    However, when the benefit of new store openings was stripped out, sales growth was flat and at the lower end of market analysts’ expectations.

    Source: Woolworths suffers worst quarterly sales in 13 years as discount price war hurts

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