Portfolio: DM Stocks Beat Retail, Overall Market
In December, a seasonally strong month for both mailers and retailers, an index of 38 direct marketing stocks tracked by securities firm ABN Amro -- 35 of which are part of the <I>DM News<I> Portfolio -- provided a 16.3 percent return versus a 5.6 percent return for a similar index of 30 retailers and the S&P 500.
The spread has continued into this year. For the 30 days ending Jan. 22, the DM index was up 15 percent versus 6.5 percent for retail and 2 percent for the S&P 500.
ABN Amro's DM index, which consists of 31 apparel, BTB and general merchandise catalogers as well as seven companies whose business is driven by direct marketing, has also beaten the returns on its retail index over the long term. Since the comparison was initiated in 1994, a $100 investment in the DM index would have grown to $600 while a $100 investment in the retail index or the S&P 500 would now be worth about $275.
ABN Amro DM analyst Kevin Silverman said these results reflect a shift in the way consumers are choosing to make purchases. The shift is leading to higher sales and earnings; and, as it continues, so should the outperformance by the DM sector.
DM stocks are doing better because their earnings are growing faster than retail stocks' earnings. Despite the earnings growth, the average price to earnings ratio of DM stocks compared to retail stocks has remained stable. This means that DM stocks continue to be undervalued compared to their retail counterparts, i.e. they can be purchased at bargain prices relative to their expected growth.
Silverman noted that baby boomers are showing a greater tendency than the population as a whole to purchase through direct marketing. As the population gets older, richer and more educated, he said, consumers' time will become more valuable; and more time-efficient channels will gain market share. The Internet is an extension of this trend.
"It's an evolution of convenience for consumers and efficiency for merchants, and it will continue," he said.
Harte-Hanks is rewarding shareholders for a strong year by raising its quarterly dividend 33 percent to 2 cents per share. The dividend is payable March 15 to shareholders of record March 1.
Cataloger Spiegel (SPGLA) has replaced CML Group which was delisted from its exchange while US Web (USWB) has replaced CKS Group, which it acquired in December. Banta Corp. has changed its ticker symbol from BNTA to BN while the price of Amazon reflects a 3-for-1 stock split effective Jan. 5.
Portfolio Value: If $1,000 had been invested in each of these companies at the beginning of the year -- for newly public companies when the stock first closed -- the value would be $106,839, an increase of 6.84 percent.