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(Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail)
(Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail)

TheStreet.com

Goldman's 11 best U.S. consumer stocks for 2011 Add to ...

The company pre-announced fourth-quarter results. It will provide further detail and disclosure on Feb. 7. Goldman lowered its 2010, 2011 and 2012 earnings per share estimates in reaction to the announcement. It also lowered its price target $3 to $59, still predicting an attractive return of 33 per cent in Hasbro shares. Hasbro missed Goldman's quarterly sales estimate, but the bank is still bullish as it feels that Hasbro has entered a "sweet spot with respect to its entertainment-driven strategy." Hasbro recently launched The Hub television channel and ratings have widely exceeded analysts' initial expectations.

Other analysts are also bullish on Hasbro, with 65 per cent advising clients to purchase shares and 35 per cent saying to hold. Piper Jaffray echoes Goldman's Street-high target of $59. Goldman expects earnings to accelerate during the second quarter, but it expects near-term weakness, resulting from an inventory overhang and a weaker-than-anticipated holiday season, which will likely be evident in first-quarter earnings.

3. Abercrombie & Fitch is a specialty retailer focused on the teen demographic.

Abercrombie's fiscal third-quarter adjusted earnings of 56 cents, representing 37 per cent year-over-year growth, beat analysts' consensus target by 11 per cent, signaling business momentum. But, the gross margin declined from 72 per cent to 70 per cent, dismaying analysts. Investment bank Jefferies considers Abercrombie the best cyclical specialty retail play. It is forecasting a rise of 70 per cent to $85. Yesterday, Abercrombie shares rallied an impressive 4.2 per cent as the S&P 500 climbed 0.8 per cent.

Goldman isn't as bullish as Jefferies, but it does expect Abercrombie to outperform in 2011. The bank's $70 price target implies 41 per cent of upside to the stock. Although Abercrombie's stock has gained 60 per cent in the past 12 months, Goldman believes that, on the basis of its gross profit per foot and stock price before the recession, Abercrombie is still notably undervalued and at the onset of a major profit growth cycle as it regains its popularity in the U.S. and expands overseas.

2. Starbucks sells coffee through its branded stores and whole beans, ground and single-serving coffee through a variety of channels.

Starbucks' turnaround story has garnered plenty of attention from Wall Street. The company's stock has surged 45 per cent in the past 12 months, handily outperforming U.S. indices. In response to the eye-catching move and recent spikes in coffee prices, analysts have soured on the stock. Half rate it "buy" and half rate it "hold." Goldman's $44 target, consistent with a 41 per cent return, is the highest on Wall Street. Starbucks is now forecasting 20 cents of commodity inflation for 2011, which will crimp profit margins and earnings at Starbucks.

Despite this negative, Goldman is reiterating its "conviction buy" call. It expects 7 per cent to 10 per cent same-store-sales growth in 2011 and expects margin expansion, in spite of commodity inflation, due to operating leverage and sales initiatives. Since Starbucks has locked in its 2011 coffee prices, it no longer bears near-term commodity risks. Goldman believes that Starbucks is at an inflection point in emerging markets and poised to rapidly expand in that arena over the next few years. It has the highest earnings targets on Wall Street.

1. Phillips-Van Heusen is an apparel manufacturer.

Last week, Jones Apparel pre-announced disappointing numbers, sending Phillips' stock down more than 2 per cent. Goldman urges investors not to throw the baby out with the bath water. A similar phenomenon occurred when Jones missed analysts' consensus for third-quarter earnings. Goldman cited positive comparable trends and recently raised outlook as proof that Phillips remains the preferred equity in the apparel group. It views the pullback as a buying opportunity. A mid-cap with a $3.9-billion market value, Phillips receives "buy" ratings from two-thirds of the analysts covering its stock.

Goldman's $85 target suggests a gain of 46 per cent. Phillips-Van Heusen is an attractively-priced stock, selling for a forward earnings multiple of 12, a book value multiple of 1.6, a sales multiple of 1 and a cash flow multiple of 13, 38 per cent, 67 per cent, 56 per cent and 43 per cent peer discounts.

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