20 September 2005

Is bulk the buy from broadline retailers?

I pulled the Dow Jones Broadline Retailers Index off of Marketwatch.com to make sure that I wasn't leaving any obvious big-box store names unexamined. And also to spot any small regional retailers that operate outside of the NY metro area, and would thus be off my radar.

What I'm looking for are stocks that fit into my discount thesis, that offer lower price points, yet are still profitable and growing. I'm also looking for stocks that are trading beneath their 200-day moving averages, or near their 52-week lows. Wall Street has been hammering this sector, and ideally, I'd like to find a bargain amongst the bargain retailers.

Here are some names that caught my attention, with some statistics of interest:
Ticker/Name/Price/52-Week Range/PE Ratio/Gross Margin/Profit Margin/Comments

BJ - BJ's Wholesale Club - $27.45/$25.96-34.70/15.78/9.91%/1.28%/158 locations, generally on the East Coast.
COST - Costco Wholesale - $42.00/$39.48-50.46/20.29/12.53%/1.96%/452 locations
CULS - Cost-U-Less - $6.36/$4.95-11.94/9.22/na/na/11 locations in bizarre out-of-the-way locations, like various Pacific and Caribbean islands...and one in California. The company operates out of Bellevue, Washington, hundreds of miles from their nearest location. Check out the corporate website, and look at the photos of their locations; not too promising. However, their same store sales numbers keep rising, and they shouldn't need to worry about competitors entering their D-list markets.
DG - Dollar General - $19.03/$18.10-22.80/17.62/28.63%/3.47%/About 7900 locations, with over 550 added in the past fiscal year.
FDO - Family Dollar - $20.93/$19.50-35.25/15.28/33.23%/3.77%/5700 stores in 44 states; Katrina losses pegged at about 50-60 stores.
PSMT - Pricesmart - $8.45/$6.11-9.65/na/16.15%/-3.71%/26 smaller wholesale clubs in 12 countries. Low trading volume.
RVI - Retail Ventures - $12.23/$6.02-14.34/na/39.47%/-9.43%/Formerly known as Value City Department Stores, on the bright side, RVI spun off DSW and owns a significant portion of that company. It also operates Filene's Basement stores.

And let's throw in WMT and TGT for comparison's sake:
TGT - Target - $51.01/$45.03-60.00/21.08/31.52%/4.41%
WMT - Wal-Mart - $43.31/$43.82-57.89/17.05/23.26%/3.56%

The above stocks trading the furthest below their 50-day moving averages on a percentage basis are CULS, TGT, FDO and BJ.
The above stocks trading the furthest below their 200-day moving averages on a percentage basis are FDO, CULS, WMT, and BJ.

Before I go any further, I'm well aware that I'm doing some apples and oranges comparisons here, mixing warehouse clubs with strip-center dollar shops.

PSMT is not making any money and has a very low trading volume. Way too speculative for me. RVI isn't making any money either, and I recall seeing Value City stores in a crappy part of Northwest St. Louis County and in Vineland, NJ. It's also trading much too close to its 52-week high. I'm figuring its up because of the DSW IPO and the financial benefits arising from its DSW holdings.

BJ versus COST. When it comes to shopping, my friends prefer Costco. Wall Street prefers COST, too. It's a tad bit more profitable than BJ, yet trades at a much higher premium, forcing a stock purchaser like myself to pay more for COST's profits than BJ's. Also, BJ is lagging its moving averages. This could be a bargain that warrants more research.

Moving onto CULS, this looks like a cheap but highly-speculative move. The same-store sales growth figures are nice, but not enough to convince me to continue looking. Would you invest in stores that look like this?

Now, DG versus FDO. FDO wins with a slightly higher profit margin, and a somewhat lower P/E ratio. FDO is also lagging its 50-day and 200-day moving averages.

Finally, as I was writing this up, WMT hit its 52-week low.

I'm going to load up the WershovenistPig Stock Watch List with BJ, FDO, WMT, and TGT. Please note that the Watch List is a work in progress; it's not meant to be a diversified portfolio, but a collection of stocks from which I may make a purchase in the near future.

1 comment:

epinionated2005@gmail.com said...

As low-risk picks, Wal-Mart is appealing. Steady return, little risk. One area for growth where Wal-Mart can and likely will grow is in on-line sales. As more people shop on-line, they will bargain shop on-line as well. Having ordered both merchandise as well as music from walmart.com, I can vouch for them as an average webtailer. The site is simple to use, and delivery is rarely an issue. The only problem is they often charge tax, because they are practically everywhere, which eliminates one of the savings of on-line shopping.
Som good recommendations to watch int hat pile of retail outlets, Wershoven. I think WMT has the best longterm return over the next 8-10 years range. I still really like IGT and MRH int he nearer longterm, though they seem to have stagnated since you talked about them. APC jumped though. Keep up the great work.