By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 4/26/12 Sign up for free Cabot Wealth Advisory e-newsletter
Fred's, Inc. 'A' (FRED), founded in 1947 in Memphis, sells discount merchandise from 701 stores in 15 states in the Southeast and Midwest. Fred's also offers a large selection of generic drugs, which are in high demand and highly profitable. Stores offer household goods, pharmacy items, food, pet supplies, clothing and linens. The average store size is modest at about 14,400 square feet.
U.S. consumers continue to seek bargains when shopping for food, clothing, and household items even though the economy is improving. Major retailers are aggressively cutting prices to compete for each retail dollar. Merchants selling luxury goods and high-end merchandise are producing solid sales, but the stock prices of high-end retailers, such as Saks, Tiffany's and Coach are too high. Likewise, the stock prices of discount and dollar store companies, such as Ross Stores, T J Maxx, Dollar General and others enjoying strong sales are too high to buy right now.
Enter Fred's, which is a smaller discount retailer with sales of less than $2 billion, but whose stock price is very reasonable. Same store sales have been flat during recent months, but I expect much better sales growth during the next several quarters as a result of 26 new stores opening in 2011 and 413 stores undergoing renovations during the past two years.
I expect sales to increase 7% and earnings to rise 12% during the next 12 months. The retailer has added pharmacies to half of its stores and is working to do the same in most of its remaining stores. In addition, Fred's will continue to open many new stores and renovate existing stores.
FRED shares are undervalued at 1.13-times book value and at 13.8-times forward earnings per share. The Standard & Poor's Earnings/Dividend Rank is B+, and the dividend yield of 1.7% is decent. I expect the strong demand for merchandise offered at low prices to continue during the next several years. I advise buying FRED at or below 14.72 and selling when the stock price hits 21.74. FRED shares are low risk.
Editor's Note: You can find additional stocks selling at bargain prices in our new and improved Cabot Benjamin Graham Value Letter. Find out why our subscribers are showering us with compliments! In every issue, you'll find Roy's legendary Maximum Buy and Minimum Sell Prices for over 250 well-known stocks. Click here to get started today!
By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory, 11/24/11
Fred's Inc. 'A' (FRED), founded in 1947 in Memphis, sells discount merchandise from 678 stores in 15 states in the Southeast and Midwest. Stores offer household goods, pharmacy items, food, pet supplies, clothing and linens. Average store size is modest, about 14,400 square feet.
Fred's offers a large selection of generic drugs, which are in high demand and highly profitable. I expect sales to increase 5% and earnings to rise 12% during the next 12 months. The retailer has added pharmacies to half of its stores and is working to add pharmacies to most of its remaining stores.
FRED shares are undervalued at 12.8 times forward earnings per share and at 0.92 times book value. The dividend yield of 2.0% is decent. I expect the strong demand for merchandise offered at low prices to continue during the next several years. I advise buying FRED at or below 13.00 and selling when the stock price hits 19.61.
I will continue to follow stocks offering investors good value in my Cabot Benjamin Graham Value Letter. My next issue, coming soon, will focus on undervalued stocks with low P/E to growth (PEG) ratios. I hope you won't miss it!
Editor's Note: You can find additional stocks selling at bargain prices in our new and improved Cabot Benjamin Graham Value Letter. Find out why our subscribers are showering us with compliments! In every issue, you'll find Roy's legendary Maximum Buy and Minimum Sell Prices for over 250 well-known stocks. Click here to get started today!
J. Royden Ward
Editor of
Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of
Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the
Value Letter.