Merck & Co., Inc. (MRK), Crocs, Inc. (CROX) – Beat the Taper: Part One

The plastic shoe looks set to shine

Crocs, Inc. (NASDAQ:CROX) is next, and while I am hesitant to say that I love the company’s main product, I do love the company, for two reasons.

First, and most importantly, the company’s turnaround plan.

Crocs, Inc. (NASDAQ:CROX) is currently trying to reinvent itself as management has realized that the company cannot survive on a single range of plastic shoes forever. Interestingly, the new range looks nothing like the old, so now, Crocs, Inc. (NASDAQ:CROX) has another product line, which is not associated with the old, much hated style.

However, the market has not been kind to the company quickly disregarding Crocs, Inc. (NASDAQ:CROX) after earnings fell a staggering 40% during the second quarter. On the other hand, revenues expanded and management have highlighted that the fall in earnings was a result of a colder than expect spring in Europe that forced the company to slash prices in order to reduce inventory. Falling earnings were also blamed on more store openings – an investment for the future.

A colder than expected spring has now turned into a warmer than expected summer, with temperatures reaching multi-decade highs in the UK and Spain – all good news for Crocs, Inc. (NASDAQ:CROX).

Secondly, Crocs looks attractive on a valuation basis. In particular, after its recent decline, Crocs looks cheap. In fact, the company it is easily one of the cheapest companies in the footwear apparel sector – trading at a price-to-sales ratio of 1, compared to the sector average of 2. In addition, Crocs trades at a forward P/E of 10 compared to the sector average of 14. The company is also well placed to execute its turnaround strategy with a debt free balance sheet and $290 million of cash worth $3.30 per share.

So, with more stores, a new product range and warmer weather, Crocs looks well placed to beat the taper in the next quarter.

Foolish summary

With the taper set to begin in September, the market looks set for a wild ride and these three stocks are well placed for investors to ride out the volatility. Stay tuned for Part 2 in which I analyze the other three opportunities.

The article Beat the Taper: Part 1 originally appeared on Fool.com and is written by Rupert Hargreaves.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool owns shares of Crocs. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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