In his Fundamental Growth model, manager Gerald Sparrow looks for companies that have grown their sales, earnings and cash flows over time and that have established their ability to survive varying economic cycles. This week, he added three new positions to his model.
The first was Polo Ralph Lauren Corp (NYSE: RL). RL reported sales of $4.9 billion in 2008, which grew to $5 billion in 2009. Sales were the same in 2010, which fell below the expectations of analysts. The company’s gross income in 2009 was $2.7 billion but rose to $2.9 billion in their 2010 fiscal year. The company, while still considered by many to be a luxury retailer, has managed to maintain impressive sales and growth even through a recession, during which luxury purchases were often avoided. It is possible this is because the company has redefined itself from luxury goods to necessary basics on the American consumer’s psyche.
The next position Sparrow added to the model was Netflix Inc (NASDAQ: NFLX). NFLX’s sales have been rising steadily since 2007, at which time they totaled $1.2 billion. In 2009, they reached $1.7 billion. NFLX’s gross income has also steadily risen, reaching $369.7 million in 2006 then growing to $591 million in 2009. As more and more people look for ways to reduce their monthly bills, NFLX has the ability to continue to grow. Their inexpensive subscription prices combined with the increasing availability of streaming titles to watch online may become more and more attractive to thrifty consumers.
And finally, on July 12, 2010, Sparrow added Hershey Co (NYSE: HSY) to the Fundamental Growth model. HSY has increased its sales consistently since 2007, at which time it reported $4.9 billion in sales. In 2009, their sales reached $5.3 billion. Their net income has also increased, rising from $1.8 billion in 2008 to $2.1 billion in 2009.
