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


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

Goldman cites a recent 8 per cent hotel-cost cut as a permanent, structural boost to profit margins and the stock price. It also believes that Starwood's foothold in India and China put it "in a unique position to not only benefit from intra-country travel in those markets, but also outbound travel" because of brand recognition. Construction data, signaling stagnant hotel supply, and consumer data, pointing to looser purse strings, strengthen the bank's thesis. Following Starwood's analyst day in early December, Goldman boosted its target to $70, implying 18 per cent of upside.

7. Kohl's is a discount department store. It has been an outstanding performer, based on fundamentals, during and since the recession.

Kohl's has expanded sales 3.1 per cent annually, on average, over the past three years as its stock rose 5.6 per cent a year. But, in the past 12 months, investors have favoured specialty retailers leveraged to the economic cycle. Goldman is still bullish on Kohl's due to its accelerated share repurchase program, which it believes will bolster fiscal fourth-quarter earnings per share, which will be announced on Feb. 24. It also sees upcoming brand launches, such as the recently announced Jennifer Lopez and Marc Anthony partnerships, as catalysts for the stock. More relevant: Kohl's trades at a discount to retail peers.

The stock sells for a trailing earnings multiple of 15, a forward earnings multiple of 12, a book value multiple of 1.9 and a cash flow multiple of 9.8, all discounts to multiline retail industry averages. Kohl's 10 per cent trailing 12-month operating margin ranks in the 90th percentile for its industry. A $61 target implies 19 per cent upside.

6. Ford Motor manufactures cars and trucks.

The Dearborn, Michigan-based company reported fourth-quarter results Friday. Ford posted adjusted quarterly earnings of 30 cents, missing analysts' consensus estimate by 38 per cent. Its stock tumbled more than 13 per cent in reaction to the results. Ford beat by a double-digit percentage in the six previous quarters. Ford has an average earnings beat rate of 48 per cent. Its top-line figure, at nearly $32-billion, representing an 8.3 per cent year-over-year decline, beat the consensus target by 14 per cent. Despite a poor report, Goldman is still bullish on Ford's prospects, saying that the EBITDA and free cash flow story is "far from over" at Ford.

Goldman lowered its six-month price target on Ford to $20, still suggesting an attractive 24 per cent return. Goldman has incorporated higher fixed-cost inflation and product development and manufacturing costs into its model. Although these capital outlays have spurred a mass migration out of the stock, Goldman views them as a positive long-term strategic move, which will assist Ford in strengthening product leadership. Ford's stock trades at a trailing P/E of 9.1 and a forward P/E of 7.6, 42 per cent and 65 per cent automotive industry discounts.

5. Dana Holding designs, manufactures and sells automotive and industrial products.

Left for dead during the recession, Dana has mounted an impressive turnaround, shedding debt and bolstering cash. At the end of the third quarter, it held $1.1-billion of cash and $953-million of debt, for a net liquidity position. It announced last week that it had completed the reformation of its capital structure by replacing its secured term loan with $750-million of unsecured notes. Standard & Poor's upgraded the company's debt to BB- earlier in the week, a reassuring sign. Goldman has a $22 price target on Dana, expecting a 25 per cent advance in the next year.

Dana's preliminary 2011 guidance missed Goldman's expectation on the EBITDA front. Goldman considers the $1.30 to $1.40 earnings per share guidance a positive, though. That range exceeded the Wall Street consensus estimate. If Dana is capable of hitting the high end of its range, its stock costs less than 13-times forward earnings, a huge 59 per cent peer discount. Dana's stock has delivered impressive three-year annualized gains of more than 19 per cent. It is up 4 per cent in 2011.

4. Hasbro makes toys and operates a kids-focused television channel.

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