Merger activity among retailers is the highest its been in years.
- Feb 18, 2005
- admin
- Investing
IMAGINE WALKING DOWN THE STREET AND FINDING A USED CIGAR BUTT.
But instead of ignoring it or throwing it away, you decide to
pick it up.
That’s right.
After lighting the used cigar butt you put it to your lips and
take a nice big drag.
Disgusting huh?
Well, that’s what investors have been doing recently in the
retail space.
Let me explain.
In the retail industry today there are lots of “cigar-butts.”
Companies that – from a competitive position – are like used
cigars.
Clearly their best days are behind them.
You know which ones I’m talking about – you can tell as soon
as you walk into one of their stores.
The smell of “retail death” is overwhelming.
Companies like:
May’s Department Stores (SYM: MAY)
Saks Fifth Avenue (SYM: SKS).
Yes, even Sears (SYM: S) – K-mart (SYM: KMRT).
Think about it.
When was the last time you walked into a JC Penney (SYM: JCP) and
were actually impressed?
Thought so.
Well, each of these companies has something in common besides
a bad business or merchandising strategy.
None of them knows how to create shareholder value.
Hence the phrase “cigar-butt investing.”
All you’re looking for is one last drag.
And in the retail space today that means a takeover.
But usually you have to wait for some suitor to come
calling.
And by the time it happens, usually the profit you’ve dreamed
of goes up in smoke.
I’ve always done things differently.
Instead of buying “problem” retailers, I like
“solution” retailers.
Retailers that solve problems for their customers.
Retailers that sell people what they want and what
they need.
These are not the kinds of retailers that need to be
acquired just to stay alive.
The retailers I’m talking about have strong brand names,
strong cash flow and little debt.
Instead of begging to be acquired, they are the ones doing
the acquiring.
But instead of buying whole companies, they acquire their
competitors – one customer at a time.
And that brings me to my next point:
We’ve just recommended our first retailer of 2005.
A retailer so strong that the company has been able to increase
sales and profit at double digit rates for the past decade.
A retailer so powerful that its been able to accomplish this
without the use of any debt.
But our retailer isn’t begging to be acquired.
And our retailer knows how to make money in good markets or bad.
But that’s not the best part.
The best part is that the retailer we’re just recommended
to subscribers of the Tycoon Report is only selling for
$27.70 per share.
That’s 10 points off its year high and only 2 points above
its yearly low.
What’s more is that we believe the company is worth
between 40 – 50 per share.
And thats just if our retailer decides to do what its been doing
for the past 10 years.
But something tells us that our retailer has bigger plans.
Much bigger plans.
Plans so big that if executed correctly, our retailer can jump
into the big leagues within a few years.
Just like Coach (SYM: COH), which went from $500 Million in
Sales to $1.3 BILLION in sales in the past five years.
That sent their stock from $4 to $54.
That means that for every $10,000 you invested into Coach, you’d
have $125,000 in profit.
We believe our retailer offers you the exact same upside potential.
So, if you would like to read the latest issue of the Tycoon Report
to find out which retailer I’m talking about you can do so with
a 30-day trial.
Remember, you are what you read.
–Dylan Jovine