Meet the New Billion-Dollar Baby.
FRANK SINATRA SAID IT BEST.
When asked to comment on Shirly McLaine’s tell-all book he simply
said, “It’s amazing what a broad will do for a buck.”
He could just as easily have been talking about shoppers.
Or anybody who likes to hunt for bargains.
And hunting for bargains is what I do – whether we’re talking about
groceries or we’re talking about stocks.
That’s why I’m so excited about this months issue of the Tycoon
Report.
As a matter of fact I wanted to use my column this week to
tell you about the best discount retailer YOU’VE NEVER HEARD OF…
But first some background:
Right now retail is hot.
Ever since Ed Lampert made BILLIONS taking K-Mart out
of bankruptcy and merging it with Sears (SYM: SHLD) every investor,
hedge fund manager and private equity player in the country has
been playing catch-up.
Just read the Wall Street Journal.
In an article about the industry last week they mentioned that
Jones Apparel (SYM: JNY) bought Barney’s.
Federated (SYM: FD) is buying May (SYM: MAY).
And a group of private equity folks just scooped up Toys-R-Us
(SYM: TOY).
In addition, a large chunk of money has been raised in the
anticipation of doing even more deals.
What does that tell me?
When the front page of the Wall Street Journal is talking about
trends than the big money has already been made.
Thankfully for subscribers of the Tycoon Report we were way
ahead of the trend.
In the past six months we’ve recommended 3 retailers for one
reason and one reason alone – because they were cheap!
But now they’re getting expensive.
So before we could find the next great bargain we needed to
take another hard look at the overall industry to see if
there was any money to be made.
Here’s What We Found:
1. The real-estate plays in retail have already been priced in.
That means that most companies with long-held real estate are
not worth owning at this point.
2. Niche retailers such as Abercrombie and Fitch (SYM: ANF)
already had their super run. Sell them if you still own them.
3. Discount retailers such as Wal-Mart (SYM: WMT) have been
stuck in the mud during the past two years.
Not too bad as a start but nothing to write home about.
So we had to dig deeper.
We decided to look deeper into general merchandise
discounters – the group that hasn’t made a big move yet.
What we found next was pleasantly suprising.
Looking at the general merchandise discounters we found
a Fortune 500 company that sells products for a dollar.
That’s right – a “dollar-store.”
But what was most impressive us was that this particular
dollar store has higher profit margins than both
Wal-Mart and Target.
In addition, they’ve averaged higher returns on capital
than both companies during the past decade.
For example, in 2004 for every $1,000 this company invests
into its business it earned almost $180 back.
In contrast, for every $1,000 Wal-Mart invests into
its business it earned $150 back.
And Target only earns $100 back every time it invests
$1,000 into its business!
But that’s not even the best part.
The best part is that this company – which is selling
in the low 20’s – is selling for roughly the same amount it was
five years ago ñ when the company was half its current size.
Remember, you are what you read.
— Dylan Jovine