Citigroup just initiated coverage of the shares of our first recommendation, a retail discounter (and one of my favorite stores!), with a “Buy” rating. The company’s earnings beat, as well as its upward earnings revision are attracting investors, pushing the shares up. Secondly, we offer a sell recommendation of a biotech stock that has come under pressure as a result of an industry sell-off.
Buy: Big Lots (BIG)
Big Lots (BIG) is a national retailer that specializes in selling closeout merchandise in its more than 1,400 retail stores in 48 states. By offering brand-name products from 3,000 manufacturers, the company offers big value in furniture, seasonal goods, consumables and food (among other items) to its customers.
This isn’t a rapid growth company, as revenue growth has been in the low single digits for years. But investors are interested right now as the company’s August 28 quarterly earnings report topped analysts’ estimates on both revenue ($1.21 billion vs. estimates of $1.20 billion) and earnings (40 cents per share when analysts had predicted 34 cents per share). Management also raised earnings guidance for the fiscal year from $2.87 per share to a range from $2.90 to $3.00. Earnings are forecast to rise 20% in fiscal 2016 and 19% the year after.
That kind of quarterly beat and raising of projections tends to get investors’ attention, and it has worked on Big Lots’ stock. With an attractive 1.6% annual revenue yield and a reasonable 18 P/E ratio, Big Lots is a nice package.
BIG hasn’t been a frequent visitor to Top Ten, with just two previous appearances, one in 2007 and one in 2008. But the stock’s blastoff on August 28 came on more than seven times average volume. After gapping up from 42 to 49, BIG corrected back to 44 on September 14, then got moving again as its combination of good value, dividend and momentum caught investors’ attention. If you’re game, BIG looks like a good buy near 48 for conservative investors. Use a stop at 44 for risk control.
Michael Cintolo, Cabot Top Ten Trader, www.cabot.net, 978-745-5532, September 28, 2015