Three Stocks That Will Benefit Most from Black Friday

Black Friday is such an ominous name for a day that generates so much excitement.

The day after Thanksgiving is particularly exciting for the businesses that cash in on overzealous early Christmas shoppers. Companies that prosper most are the ones with the best strategies for reaching customers. That’s a quality investors like to see in a stock.

There are three stocks that I believe stand to benefit most from the busiest shopping day of the year.

The first of these stocks is a time-tested company that has been synonymous with Thanksgiving for more than 80 years. The other two are taking advantage of the technology boom, selling products that have become some of the most popular Christmas gift items in years past.

All three companies have been among the biggest Black Friday "winners" in recent years. With the economy on its soundest footing since 2007, all three companies appear poised to have their most successful Black Fridays yet.  That’s good news for their quarterly earnings, and could be a harbinger for healthy gains in the stock market over the next couple months.

Macy’s (NYSE: M)

Macy’s is as much a part of Thanksgiving as pumpkin pie and games of touch football.

The Macy’s Thanksgiving Day Parade annually draws one of the biggest television audiences of the year. Forty-three million viewers tuned in to watch the parade last year. That’s 43 million people watching the dozens of Macy’s commercials that air during the broadcast. By the time the last parade float rolls through Times Square, the name "Macy’s" is ingrained in people’s minds.

It’s no wonder that Macy’s is regularly the top performing department store when all those parade watchers start their holiday shopping the next day. With extended hours this year, Macy’s sales are about to become even bigger. Macy’s is opening its doors at midnight this year, topping the 4 a.m. opening in 2010. That’s four extra hours of shopping at more than 800 department stores. You do the math.

Another big Black Friday at Macy’s seems likely after the company’s impressive third quarter. Its $139 million in third-quarter earnings beat analyst expectations. The company’s sales were up 4.1 percent from the third quarter in 2010. Meanwhile, year-to-date sales are up 5.7 percent from 2010.

More importantly for investors, Macy’s expects its fourth-quarter sales to grow between 4 and 4.5 percent. It’s likely that this week’s Black Friday will have a lot to do with Macy’s strong start to the holiday shopping season.

Amazon (Nasdaq: AMZN)

Black Friday has become such a spectacle and the crowds have gotten so big that it can be a bit daunting. After all, not everyone wants to camp out in a parking lot at three o’clock in the morning only to get stampeded by fellow shoppers once the doors finally swing open. That’s why more and more people are doing their Black Friday shopping online, from the comfort of their homes.

Online shopping accounted for more than one third of all Black Friday shopping activity in 2010, with an estimated $648 million in sales – 9 percent higher than the previous year. And no company took advantage of Black Friday’s shift to the Internet better than Amazon. Its website drew the highest volume of Black Friday traffic in 2010.

Thanks to the Kindle Fire, Amazon’s online traffic should jump again this year. The company just released its new electronic tablet last week, and sales are already through the roof. Sales of the 7-inch tablet with the affordable price tag ($199) are expected to top 4 million units in the fourth quarter. With the Kindle Fire attracting more visitors to its site, Amazon is cashing in by offering huge discounts on hundreds of its other products.

For Amazon, Black Friday lasts all week. Its website had an entire "Black Friday Deals Week" section up since Monday, where customers could save hundreds of dollars on items such as LED TVs, digital cameras and laptop computers. So in essence, Amazon has seven Black Fridays packed into one week – minus the headaches of shopping at a brick and mortar store.

Best Buy (NYSE: BBY)

E-readers, Blu-ray players, flat-screen TVs and other electronics have been among the biggest sellers for holiday shoppers. And Best Buy offers Black Friday deals on all of them. That’s why the electronic retailer has traditionally been among the day’s top performers.

This year Best Buy bumped up its Black Friday sales a week earlier, offering huge discounts starting last weekend both in its stores and online. And according to Consumer Reports, Best Buy is living up to its name, offering some of the best Black Friday deals around. The company boasts four of the top 10 Black Friday deals on TVs.

Furthermore, like Amazon, Best Buy has successfully tapped into the shift to online shopping: Its website was among the top-five most visited sites by Black Friday shoppers a year ago.

Bottom Line

Still, Black Friday is just one day – or one week, in some cases. A booming Black Friday is not going to make a company’s year no matter how much it cleans up. Conversely, a company’s stock isn’t going to explode based solely on Black Friday sales.

Black Friday is, however, a useful litmus test. It’s an indicator of which companies have the best strategies for reaching customers. Over time, sound marketing strategies reveal themselves in a company’s bottom line. If a company performs well on a day when competition for customers is at its peak, odds are it won’t have too much trouble attracting customers year-round.

An increasing customer base suggests growth. And growth is a characteristic investors love to see in a stock. We’ll be watching the retail sales results closely in the coming weeks, in search of great retailers to buy, and those to avoid. Stay tuned.

Ian Wyatt
Editor, Daily Profit
Richmond, Vermont

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