Dollar Tree (DLTR)
By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 9/1/11 Sign up for free Cabot Wealth Advisory
If you're looking for a stock to buy at this time (small positions only!), you're going to have to adjust to the market environment. Specifically, dependable, steady growth is at a premium, as market participants are worried over the threat of a recession. Thus, the triple-digit growers that I love are worth watching ... but for now, they remain in base-building mode as the market attempts to repair itself after the train wreck of a month ago.
Because of this, some of the best charts are found not in traditional defensive issues (Coca-Cola and such, which I have no interest in) but in names with some expansion potential ... but not a lot of economic risk.
Dollar Tree (DLTR) is a perfect example--it's not sexy, but that's the point! Here's what we wrote about the stock in Cabot Top Ten Trader back on August 22:
"When the market gets rough, big investors look for well-traded stocks with a defensive flavor, but also prefer those that have at least some hint of growth to them. Dollar Tree fills the bill perfectly, as its low-priced merchandise is attractive given the stagnant job market, and should become more so as the U.S. economy slows down or even slides into recession in the months to come. Plus, management has been deft at expanding the store count (up to 4,242 stores at the end of July) and total square footage (up 8.9% in the second quarter) to take advantage of the increased traffic. All told, sales have been cranking higher in the 12% to 15% range for many quarters, while earnings have generally grown faster thanks to higher margins. That trend continued in the latest quarter, with sales up 12%, same-store sales up a strong 4.7% and earnings up 26%, all slightly better than expectations. Even better, growth picked up as the quarter went on, suggesting the slowing economy could actually be helping business. Dollar Tree won't make you rich, but it looks like a solid port in the storm right here."
Since then, the stock has surged to new highs on very good volume as big investors look for safety and growth. Buying strength hasn't been the best idea in this environment, and happily, DLTR has retreated a few points this week.
If you're game, a nibble around 70 could work, with a stop in the mid-60s. Again, though, keep positions small if you decide to play in this environment.
Editor's Note: Some investors can make good money in bull markets, and some are good at avoiding damage in bear markets. But to have great returns, you need to do both ... like Mike Cintolo (VP of Investments for Cabot) has done as editor of the Cabot Market Letter's Model Portfolio. Since he took over at the start of 2007, Mike has outperformed the S&P 500 by 13.6% annually thanks to top-notch stock picking and market timing. To benefit from Mike's advice during these challenging times--and to know when and what to jump on when the bulls re-take control--be sure to give Cabot Market Letter a try by clicking HERE.
By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 6/23/11 Sign up for free Cabot Wealth Advisory e-newsletter
Among the stock sectors that provide opportunities when the U.S. economy is suffering are discount retailers, pawn shops and payday lenders.
Several companies should perform quite well during the next few months, even though I expect the stock market to trend somewhat lower. Dollar Tree and EZCORP are among my favorites.
Dollar Tree (DLTR) operates 4,177 general merchandise stores in 48 states and four Canadian provinces, many of which offer all items at $1. Dollar Tree sells house wares, toys, food, health and beauty aids, party goods and hardware.
Stronger demand from consumers looking to save money has created a great opportunity for Dollar Tree to open new stores and expand product offerings. During the first quarter, the company opened 83 stores, closed seven stores and expanded or relocated 41 stores.
Management's efforts are paying off, evidenced by accelerating sales and earnings at a time when other retailers are suffering from declining sales. Dollar Tree's balance sheet is strong with modest debt and plenty of cash to augment management's aggressive expansion plans.
Dollar Tree reported excellent results for the quarter ended 4/30/11. Sales increased 14%, earnings per share (EPS) soared 67% and same store sales surged 7%. The company's wider assortment of products, recent acquisitions and many new stores are meeting strong demand from consumers.
I expect sales to increase 11% and EPS to advance 16% during the next 12 months. At 15.1 times our forward 12-month EPS estimate of 4.15, DLTR shares sell at a very reasonable price. The company does not pay a dividend now, but dividends could be forthcoming within the next couple of years. DLTR shares are low risk.
From Cabot Wealth Advisory, 10/2/08 Sign up for free Cabot Wealth Advisory e-newsletter
This company is a slow, steady grower that's been acting superbly in recent weeks...and it's sitting at a great entry point.
It's Dollar Tree (DLTR), the discount retailer, which sells a variety of common goods (beauty care, home goods, etc.) for a buck. Here's what I wrote about the company in Cabot Top Ten Report back on December 1:
"Discount retail remains in favor and Dollar Tree is one of the leaders in the group, making its second appearance in Cabot Top Ten Report in the past month. The company operates 3,500 deep-discount stores across the country, selling a bunch of basic consumables (beauty products, candy, decorations, toys and so on) for about a buck each. The overall story might not be sexy, but it's simple: Consumers, even those with money to spare, are cutting back, with many going to discount locations to pick up necessary items. Dollar Tree's earnings report last week confirms that trend--revenues rose a solid 12%, while earnings advanced 24%, ahead of estimates and miles ahead of its general retail peers. That pushed the stock toward new-high ground, and led to estimate hikes across the board. It's not going to be a big winner, but it should do well in this environment."
Since then the stock has crept higher, but generally has remained in a very tight trading range. I like that the stock popped higher on great volume in mid-January after a fellow discount retailer reported a great quarter. Now the stock is prepping for a breakout—I think you could buy half your normal position here, keep a tight stop-loss just under 41, and possibly look to average up on a powerful move above 44.
Just be aware that earnings are due out February 25, so if you're still holding it at that point, and don't have a profit cushion, you might trim ahead of the report—no use taking a big risk in this environment. For now, the set-up looks terrific, so if you're game, pick up a few shares.
Editor's Note: Michael Cintolo is the editor of Cabot Top Ten Report, which discovers the 10 strongest stocks in the market each week. The Report routinely beats the market by finding strong leaders like these past picks: In 2005, Hansen Natural gained a whopping 570%. In 2006, NutriSystem was up an amazing 480% in 11 months. In 2007, DryShips was up 510% in 10 months. Even during last year's bear market, Cabot Top Ten Report has found winners in stocks like Cleveland-Cliffs, which doubled in four months, Continental Resources, which rose 160% from its recommendation to its peak, and Walter Industries, which rocketed from 42 in January to 112 in early July. Click here to discover the strongest stocks in the market today.
Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
|Dollar Tree (DLTR)
500 Volvo Parkway
Chesapeake, Virginia 23320
|Index Membership: S&P 400 MidCap, S&P 1500 Super Comp
Industry: Discount, Variety Stores
Full Time Employees: 13,060