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Saturday, 30 March 2013
Lumber Liquidators (LL)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

Lumber Liquidators represents the strongest holding in my Covestor "Growth and Momentum" model. (This model was formerly called "Buy and Hold Value" but was renamed to reflect the underlying strategy more accurately.) I first purchased shares of Lumber Liquidators (LL on June 26, 2012 at a cost of $32.46 and subsequently took some profits by selling a few shares on September 11, 2012 at $48.13 and again sold a few shares at $65.25 on March 8, 2013.  Lumber Liquidators (LL) closed at $770.22, up $.75 or 1.08% on the day on March 28, 2013.

Examining the 'point & figure' chart on LL from StockCharts.com, we can see the initial sell-off in shares from $24 in July, 2011, to a low of $13.50 in October, 2011.  The stock took off in December, 2012, spiking to $53/share in September, 2012 and has steadily built on that climb since that time.


According to the Yahoo "Profile" on Lumber Liquidators (LL), the company

"...operates as a specialty retailer of hardwood flooring, and hardwood flooring enhancements and accessories. The company provides various wood flooring products, including prefinished domestic and exotic hardwoods, engineered hardwoods, unfinished hardwoods, bamboo, cork, and laminates, as well as resilient flooring products. It also offers flooring enhancements and installation accessories comprising moldings, and noise-reducing underlays and tools. The company markets its products to homeowners or to contractors under the brand name of Bellawood through its integrated sales channels, such as stores, a call center, and a catalog, as well as through its Website, lumberliquidators.com. As of December 31, 2012, it operated 279 retail stores in the United States; and 9 retail stores in Ontario, Canada."

After a long period of weakness, the real estate market in America is starting to rebound and recent housing starts reports are encouraging. Companies that are involved in housing construction and renovation appear to be 'on a roll' and these include stocks like Home Depot (HD) and Beacon Roofing (BECN) among others that have shown tremendous price strength.  I do not currently own shares of HD or BECN. 

On February 20, 2013, Lumber Liquidators announced earnings for the quarter ended December 31, 2012.  As the Motley Fool site reported, the company reported revenue of $210.7 million, beating expectations of $197.4 million.  These sales were up by 21% over the prior-year same quarter result of $174.5 million.

Earnings came in at $.50/share and were also easily ahead of expectations of $.43/share.  The GAAP earnings of $.50 were also ahead of the prior year's results of $.30/share by 67%.  Certainly strong growth in financial results that are also ahead of what analysts are expecting are a good sign from my perspective for a stock that might be appreciating in price going forward to 'adjust' for the new financial results.  And the stock did exactly that!

Reviewing the Morningstar.com '5-Yr Financials' on Lumber Liquidators (LL), we can see that the company has been steadily growing revenue results from $482 million in 2008 to $813 million in 2012. Earnings during this period have grown nicely from $.82/share in 2008 to $1.68/share in 2012, although growth in earnings was relatively stagnant between 2009 and 2011.  Outstanding shares have been very stable with 27 million fully diluted shares according to Morningstar in 2008 and and increase to 28 million by 2012.

Looking briefly at the Morningstar-provided balance sheet reveals the company with $288 million in total current assets balanced against $101 of total current liabilities yielding a current ratio of 2.85.  From my perspective a current ratio of over 1.0 is adequate and over 2.0 quite 'healthy' in terms of the ability to meet current cash needs to pay liabilities.

Morningstar reports that free cash flow has also been improving recently with $2 million reported in 2008, dipping to $(4) million in 2010 and then improving to $27 million in 2011 and $34 million in 2012.  

Financially, the latest 'good results' reported in the latest quarter do not appear to be an unusual or exceptional development.  The company has been doing a good job growing revenue and earnings, free cash flow, and maintaining a healthy balance sheet.

In terms of valuation, we can see from the Yahoo "Key Statitstics" on Lumber Liquidators (LL) that with a market capitalization of $1.91 billion, this is a small cap stock. (For comparison, we can see that Home Depot (HD) has a market cap of $103.2 billion, more than 50x the size of Lumber Liquidators).

Lumber Liquidators (LL) has a trailing p/e that is certainly 'rich' at 41.80 and even with the rapid growth expected, the forward P/E (fye Dec 31, 2014) still comes in at 27.01.  Thus the PEG works out to a fairly rich 2.18.  (I generally prefer to pay up to a PEG of 1.5 for a stock.)

Yahoo reports that there are 27.16 million shares outstanding with 25.84 million that float.  As of February 28, 2013, there were 4.17 million shares out short representing a short interest ratio of 5.4 days of average trading volume, ahead of my own '3 day rule' for significance.  A large short interest ratio may be a bullish indicator if the company actually reports an unexpected piece of good news forcing the short sellers to buy shares in a 'squeeze'.  

The company does not pay a dividend and no stock splits are reported on Yahoo.

To summarize, the American economy has been in a 'funk' for several years since the financial crisis of 2008.  With Congress in a stalemate unable toact to provide a fiscal stimulus,  Ben Bernanke and the Federal Reserve have been utilizing quantitative easing and associated monetary policy to keep interest rates low and encourage economic activity.  With economic weakness and an accomodative Federal Reserve, rates have stayed low and one of the key beneficiaries of this policy has been the housing market which indeed is starting to come alive.

Lumber Liquidators (LL) is sitting in the middle of this rebound and is a company and a stock that has been helped by the real estate mini-boom developing.  

Thank you for visiting my blog!  If you have any comments or questions, please feel free to leave them right here!

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 2:43 PM CDT | Post Comment | Permalink
Updated: Saturday, 30 March 2013 2:45 PM CDT
Sunday, 24 March 2013
Valeant Pharmaceuticals International, Inc. (VRX)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please consult with your professional investment advisers prior to making any investment decisions based on information on this website.

Valeant Pharmaceuticals (VRX) is a holding of mine in the Covestor "Sustained Momentum" model. In fact, it is the strongest performing stock withing that eleven stock model.   On December 27, 2011, I purchased shares of Valeant (VRX) at a cost of $46.93/share in this account.  VRX closed at $73.97/share, up $1.11 or 1.52% on the day on March 22, 2013. 

My "Sustained Momentum" Model is based on my Marketocracy "RMF Fund" that is a simulated fund that I have been 'managing' since 2004.  Valeant is the number one holding in that simulation having appreciated 135.16% since being included in that stock market game model.  I have literally used my stock market simulation portfolio to build a real portfolio on Covestor.  I currently am populating my "Sustained Momentum" model on Covestor with the top eleven of my Marketocracy holdings.

Let's take a closer look at Valeant (VRX) which has led the Sustained Momentum Model to a strong performance since inception.

According to the Yahoo "Profile" on Valeant (VRX), the company

"...develops, manufactures, and markets pharmaceutical products and medical devices in the areas of neurology, dermatology, and branded generics. It offers dermatology products, such as Zovirax Ointment, Xerese, Retin-A Micro, Elidel, Carac, Acanya gel, Sculptra and Sculptra Aesthetic, Atralin, Solodyn, Zyclara, Ziana, Vanos, Restylane family of products, and Dysport; over-the-counter (OTC) products, including CeraVe and AcneFree; dentistry products, such as Arestin and Teeth Whitening System; ophthalmology products, including Timoptic, Timoptic, Macugen, and Visudyne; and neurology and other products, such as Wellbutrin XL and Xenazine in the United States. The company also provides pharmaceutical products, including Tiazac XC, Wellbutrin XL, Zovirax, Benzaclin, and Penlac; and Cold-FX, an OTC product in Canada, as well as Duromine/Metermine, Difflam, Duro-Tuss, and Rikodeine in Australia. In addition, it offers a range of treatments, including antibiotics, treatments for cardiovascular and neurological diseases, dermatological products, and diabetic therapies, as well as a range of various OTC products in Europe; and products for a range of therapeutic classes, including vitamin deficiency, antibacterials, and dermatology in Mexico and Brazil. Further, the company provides Duromine, Andolex, and Pholtex products in South Africa; and Difflam, Duro-Tuss, Tambocor, and Norgesic in Asia."

The history of Valeant (VRX) dates back to the 1990's when its forerunner company ICN Pharmaceuticals was in business, founded by Milan Panic.  In 2002 ICN changed its name to Valeant Pharmaceuticas (VRX).  Since that time Valeant has acquired other pharmaceutical companies including Tecnofarma in 2009, Aton Pharma in 2010, Vital Science Corp. in 2010, and Instituto Branded Generics in Brazil in 2010.  Other acquisitions included iNova, Dermik, Sanitas Group, Dermik, and PharmaSwiss S.A. in 2011, Medicis Pharma, OraPharma, Pedinol, Natur Produkt in Russia, and Probiotica in Brazil in 2012.  More recently, on March 21, 2013, Zacks reported on Valeant's acquisition of Obagi Medical Products, Inc. (OMPI) for $19.75/share.  The Obagi acquisition should be accretive to earnings according to Valeant, and adds to the company's dermatologic products.

Valeant reported fourth quarter 2012 results on March 1, 2013.  According to Zacks, the $1.21/share reported came in shy of estimates of $1.25/share but still represented a very strong growth from the $.90/share reported the prior year same period. Revenue for the quarter came in at $986 million, up 43% from the prior  year.  This was due to 'higher product sales' and beat the Zacks estimate of $959 million.  For the full year of 2012, revenues came in at $3.55 billion, up 44% from the prior year and beat consensus estimates of $3.51 million. Earnings for the year of $4.42/share were shy of the Zacks Consensus Estimate of $4.47 but still were 61.9% (!) higher than the prior year.

Valeant reaffirmed strong sales guidance of $4.4 to $4.8 billion in revenue for 2013 representing a 30% increase and earnings per share are projected to come in between $5.45 to $5.75/share.

Reviewing the Morningstar.com "5 Years Financials" on Valeant (VRX), we can see that revenue has grown strongly with $757 million reported in 2008, increasing to $3.55 billion by 2012.  Diluted earnings per share have actually dipped from $1.25/share reported in 2008 to a loss of $(.38)/share in 2012.  Diluted shares have grown from 160 million in 2008 to a peak of 326 million in 2011 before dipping slightly to 305 million in 2012.

The Morningstar site reports that VRX has $2.78 billion in current assets as of the close of 2012, with $1.8 billion of current liabilities generating a current ratio statistic of 1.5 still quite healthy from my perspective. The company has improved its free cash flow from $182 million in 2008 to $475 million in 2012.  

In terms of valuation, looking at the Yahoo "Key Statistics" on Valeant, we can see that this company is a large cap stock with a market capitalization of $22.6 billion. With losses reported there is no P/E or PEG to analyze.  There are currently 305.76 million shares outstanding and 268.51 million that float.  There are 6.52 shares out short as of 2/28/13, representing a short interest ratio of 5.9 days. (This is significant from my perspective as I arbitrarily use 3 days as a cut-off.)  No dividends are paid and the last stock split was in October, 2000.

Probably one of the most impressive parts of this particular investment is the price chart of this stock!  Looking at the 'point & figure' chart on Valeant (VRX) from StockCharts.com, we can see the price climbing sharply from a low of $13.50 in June, 2010, to a high of $56 in July, 2011, before3 slipping back to consolidate in the $35 range in October, 2011, before once again starting to climb to its current level of $73.97.  If anything the price appears technically a bit over-extended but still a very strong chart from my amateur perspective.

To summarize, Valeant (VRX) has been assembled over the past 10-15 years from a variety of pharmaceutical companies including the former ICN Pharma and Biovail corporations.  Management has done what appears to be a superb job of fitting these pieces together and they have grown revenue and earnings (at least adjusted earnings) at an impressive pace.  They do not appear to be done adding the pieces to this puzzle but the picture they have been creating has been a good one, at least thus far, for this investor!

Thank you very much for stopping by and visiting my blog!  If you have any questions or comments please feel free to leave them here on this website.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 9:29 PM CDT | Post Comment | Permalink
Saturday, 16 March 2013
CareFusion (CFN)

Hello Friends!  Thanks so much for stopping by and visiting my blog Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

On February 1, 2013, I purchased shares of CareFusion (CFN) at a cost of $31.43 for my Healthcare Covestor Model.  CareFusion closed at $34.31 on March 15, 2013, so thus far it has been a good move.  Let's take a look 'under the hood' on this stock and see if it makes sense for this blog and for my own portfolio.

First of all, according to the Yahoo "Profile" on CFN, the company

"... operates in two segments, Medical Systems and Procedural Solutions. The Medical Systems segment develops, manufactures, and markets capital equipment and related supplies for medication management. It offers IV medication safety and infusion therapy delivery systems, including dedicated disposables, software applications, and related patient monitoring equipment; automated dispensing machines and related applications for distributing and managing medication and medical supplies; and respiratory ventilation equipment and dedicated circuits for respiratory therapy, as well as develops data mining surveillance software that enables hospitals to identify adverse drug events and healthcare associated infections. This segment provides its products under the Alaris, Pyxis, Rowa, AVEA, Vela, and LTV Series brands. The Procedural Solutions segment develops, manufactures, and markets single-use skin antiseptic products and other patient-preparation products; hair-removal and skin-care products, and non-dedicated disposable IV infusion administration sets and accessories; surgical instruments; interventional specialty products, such as diagnostic trays and biopsy needles, drainage catheters, and vertebral augmentation products; and non-dedicated disposable ventilator circuits and oxygen masks used for providing respiratory therapy."

In other words, this company supplies hospital and medical clinics supplies for delivery of pharmaceuticals and patient care.

Let's take a look at their latest quarterly results.  On February 7, 2013 CareFusion (CFN) reported their 2nd quarter results.  Revenue for the second quarter came in $909 million, up 2% from the $890 million reported the prior year same period.  Operating income grew 20% to $171 million from the $143 million reported the prior year.  Income from continuing operatings came in at $108 million or $.48/share.  The 'adjusted income' from continuing operatings increased 9% to $121 million or $.54/diluted share.  These are reasonably good results but what about longer-term?

Reviewing the Morningstar.com "5-Yr Financials" on CFN, we can see that revenue has actually decreased from $4.5 billion in 2008 to $3.5 billion in 2011, and now has started increasing to $3.6 billion in 2012 and $3.62 billion in the trailing twelve months (TTM).  Diluted earnings/share however, have shown strong growth with $.87/share reported in 2007 increasing strongly to $1.30/share in 2012 and $1.42/share in the TTM.  Outstanding shares have been stable with 223 million shares outstanding in 2010 and 225 million shares in the TTM.  Thus while revenue has decreased over the last 5 years, the company has been becoming more profitable with rapidly increasing earnings while revenue has been turning around as well.

In terms of their 'balance sheet', the Morningstar.com site shows that the company has $3.1 billion in total current assets as opposed to $933 million in total current liabilities yielding a current ratio of over 3.0.  The company appears to be quite solvent. 

Morningstar.com reports that the CareFusion's free cash flow has ranged from $563 million in 2010, dipped to $177 million in 2011, and increased back to $545 million in 2012.

In terms of valuation,  this company is a mid cap stock with a market capitalization of $7.64 billion according to the Yahoo"Key Statistics" on CFN.  The trailing p/e is a moderate 24.01, the forward p/e (fye June 30, 2014) is estimated at 14.18, yielding a reasonable PEG of 1.41. Yahoo reports 222.59 million shares outstanding with 222.04 million that float.  As of February 28, 2013 there were 2.21 million shares out short yielding a relatively insignificant (from my perspective) short interest ratio of 1.10.  The company does not pay a dividend and there is no record of a stock split on Yahoo.

And how has the stock price been doing?   Examining the 'Point and Figure' chart on CFN from StockCharts.com, we can see that the stock experienced a sharp decline from $35 in July, 2007 to a low of $15 in March, 2009.  Since that low, the stock has moved higher, consolidating at around $25 between Novembe, 2009, until August, 2012.  More recently the stock has been moving higher heading back towards the $35 range.


CareFusion (CFN) has been enjoying a strong stock performance as part of a very strong Healthcare Sector.  Thus far the stock has been performing well within my own portfolio and hopefully the stock's momentum both technically and fundamentally will lead the stock price higher in the future.

Thanks so much for stopping by and visiting my blog!  If you have any comments or questions, please leave them here.

Yours in investing,

 

Bob

 


Posted by bobsadviceforstocks at 4:57 PM CDT | Post Comment | Permalink
Updated: Saturday, 16 March 2013 5:33 PM CDT
Friday, 4 January 2013
FleetCor Technologies (FLT)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I would like to apologize to my friends and readers for my long hiatus here on this blog.  I am definitely an amateur blogger and know that successful blogging requires a consistent post or two.  If I can make this a New Year's resolution....  That being said, I wish all of you a happy and healthy 2013.

One of the strongest holdings in my Covestor 'Buy and Hold' Value model is my position in FleetCor (FLT). I purchased shares of FLT on September 12, 2012 at a price of $44/share.  Today (1/4/13) FleetCor is trading at $55.05, up $.16 or .29% on the day.  Let's take a closer look at this investment and try to understand what it does, how it's doing, and what kind of valuation this stock price represents.

According to the Yahoo "Profile" on FleetCor, the company...

"...provides specialized payment products and services to businesses, commercial fleets, oil companies, petroleum marketers, and government entities in North America, Europe, South Africa, and Asia. It sells a range of customized fleet and lodging payment programs; and offers various card products to purchase fuel, lodging, and related products and services at participating locations. The company also offers prepaid fuel and food vouchers and cards, as well as a telematics solution that enables fleet operators to monitor the capacity utilization and movement of vehicles and drivers."

First of all let's take a look at the latest quarter.  Zacks reported on their 3rd quarter results on November 9, 2012.  Revenues for the quarter came in at $186.9 million, up 32% over the prior year same quarter.  Revenue growth largely was due to international results which climbed 107.3% year over year, and moderate growth domestically, up 9.1% year over year.

Adjusted earnings came in at $.83/share, up 48% from $.56/share the prior year and exceeding the Zacks Consensus Estimate by 20.1%. The company also raised revenue guidance for 2012 to $678-$682 million from prior guidance fo $665-$675 million.

In terms of longer-term results, reviewing the Morningstar.com '5 Years Financials', we can see that revenue has grown  steadily from $341 million in 2008 to $520 million in 2011 and to $645 million in the trailing twelve months (TTM).  Net income has improved from, $97 million in 2008 to $147 million in 2011 and $194 million in the TTM.  On a diluted earnings per share basis, Morningstar reports FLT reported $1.34/share in 2010, $1.76 in 2011, and $2.27/share in the TTM.  Outstanding shares were 81 million in 2010 and have grown slightly to 85 million in the TTM.

Looking briefly at their balance sheet on Morningstar, we can see that the company as of December 2011, had $1,123 million in total current assets compared to $1,122 in total current liabilities giving it a current ratio of just over 1.0.

Free cash flow has improved from $52 million in 2008 to $266 million in 2011 and dipped to $224 million in the TTM.

Looking at Yahoo "Key Statistics" for some valuation numbers, we can see that this is a Mid Cap Stock with a market capitalization of $4.65 billion.  The company sports a moderate trailing P/E of 24.22 and a forward P/E of 16.62.  With rapid growth estimated the PEG Ratio (5 yr expected) comes in very reasonably at 1.15.  Yahoo reports the company with 84.53 million shares outstanding with only 56.62 million that float.  There are 1.84 million shares out short as of 12/14/12, resulting in a 'Short Ratio' of 2.20, under my own arbitrary 3 day level for significance.  The company does not pay a dividend.

In terms of technical strength, looking at the StockCharts 'Point & Figure' chart on FLT, we can see that FleetCor (FLT) which has a trading record since 2011, has fairly steadily increased its price from $25 to its current level of $55 where if anything it appears a bit over-extended short-term.

As the economy rebounds from the recession, the trucking industry is also rebounding.  Recently, one of my favorite sources for new ideas for stocks has been the Monday Edition of the IBD which lists the Investor's Business Daily top 50 stocks.  Not every stock on that list meets my own requirements for inclusion.  However, FleetCor (FLT) has been an IBD 50 favorite for some time and the underlying strong earnings growth and revenue record, reasonable valuation, and strong technicals along with sitting in a rebounding industry make it very attractive. 

Thank you for your continued interest and loyal readership.  If you have any questions or comments, please feel free to leave them right here.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 1:44 PM CST | Post Comment | Permalink
Wednesday, 19 September 2012
Barrett Business Services Inc. (BBSI)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

Earlier today I purchased shares of Barrett Business Services (BBSI) at an average cost of $27.96/share for my Covestor Buy and Hold Value model.  BBSI closed today at $27.88, up $.35 or 1.27% on the day.  Let's take a closer look at this stock.

According to the Yahoo "Profile" on Barrett, the company

"...offers human resource management services in areas comprising payroll processing, employee benefits and administration, human resource management, risk management, and workers’ compensation coverage areas. It also provides professional employer organization services, which include employee benefits, health insurance, workers’ compensation coverage, workplace safety programs, federal and state employment laws compliance, labor and workplace regulatory requirements, and related administrative services; and payroll administrative services, such as payroll processing, payroll taxes, and human resource consulting services. In addition, the company provides staffing services, including on-demand or short-term staffing assignments, contract staffing, long-term or indefinite-term on-site management, direct placement, and human resource administration services."

On July 24, 2012, Barrett Business Services announced results for the second quarter ended June 30, 2012.  Revenue for the quarter grew 26% to $95.5 million compared to $76.0 million the prior quarter.  Net income was $3.7 million or $.53/diluted share compared to $3.4 million or $.34/diluted share the prior year.

A couple of articles on Barrett caught my eye.  Certainly growing dividends is an attractive feature in this low-interest-rate environment.  Here is a chart on the steadily increasing, although still somewhat small, dividend that Barrett has been paying: 

In addition, Zacks gave Barrett a nice plug this week ranking it a "Buy".  Zacks pointed out that the second quarter report that I reported above represented

"...an impressive record of outperforming quarterly earnings expectations, which it continued in its second quarter report with a surprise of more than 20%."

Zacks goes on to point out that Barrett is expected to grow its earnings at a 22% rate going forward for the next 5 years ahead of the 11.6% growth rate of similar companies in the same industry.  In addition the company and analysts have been raising guidance.

Looking at some longer-term results from Morningstar.com, we can see that revenue for this company actually dipped from $289 million in 2007 to a low of $236 milion before resuming stronger growth with $273 million in 2010, $315 million in 2011 and $348 million in revenue for the trailing twelve months (TTM).

Diluted earnings/share have followed the revenue pattern dipping from $1.44/share in 2007 to a loss of $(.46)/share in 2009 before turning higher to $.71/share in 2010 and $1.41 in 2011.  Morningstar does report that earnings did come in a bit lower at $.74/share in the TTM.  The company has been buying back shares and reported 12 million shares in 2007 dipping to 10 million in 2009 and 9 million in the TTM.

In terms of free cash flow, the company reported $13 million in 2007, dipped to $2 million in 2009, then since then reported $16 million in 2010 and $30 million in 2011 and the TTM.

Briefly looking at the Morningstar.com balance sheet we can see that Barrett has $129 million in total current assets vs. $79 million in total current liabilities yielding a current ratio of 1.63.

Looking at Yahoo "Key Statistics" on BBSI, we can see that this is actually a 'micro cap' stock with a market capitalization of only $195.24 milion.  The trailing p/e is rich at 37.93, but the forward p/e is 15.40 due to the rapid growth in earnings anticipated.  Thus with the quick growth, the PEG ratio comes in at a very reasonable 0.84.  

Yahoo reports shares outstanding of only 7 million with 6.79 million that float.  Currently there are 182,440 shares out short resulting in a short interest ratio of 6.40, ahead of my own arbitrary '3 day rule' for significance.

Currently the company pays a forward dividend rate of $.44/share with an indicated yield of 1.60%.  The payout ratio is 49% suggesting adequate earnings coverage for continuing and increasing the dividend if the estimated earnings growth continues.  

The company last split its shares with a 3:2 split back in May, 2005.

Let's take a look at the 'point & figure' chart on BBSI from StockCharts.com:

We can see that the chart demonstrates the same weakness in the stock price that followed the downturn of business into 2009 and the rebound in earnings and revenue growth resulted in the strong rebound in the stock price.  Certainly the chart looks very strong if not a big over-extended at the moment.

To summarize, BBSI is a recent purchase of mine.  The earnings, the revenue growth, the free cash flow, the valuation, the technicals all look encouraging.  And the company is reducing outstanding shares as well.  Unfortunately, the company is very small and is likely to experience additional volatility that a reduced float may result and investors both pile in and pile out of a company on varying news.  The earnings report is likely very soon for the third quarter and hopefully will see this stock continue to move higher.

Thank you again for stopping by!  I have been away a little longer than usual from this blog, but I hope this entry will not be an isolated event but continued posting from me on this site.  As always, please feel free to leave your comments right here on the blog.  I shall try to remove those comments that are just links to individuals promoting their own websites.  I know how that works.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 8:33 PM CDT | Post Comment | Permalink
Saturday, 28 April 2012
Writing Articles on Seeking Alpha

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

For several years now I have had a close relationship with the Seeking Alpha website. David Jackson started this brilliant website back in 2004, shortly after this own website was started.  Many of the entries here have been picked up by Seeking Alpha and have been reposted on their page where further distribution occurs including on Yahoo Finance and elsewhere.  

This past week I have written a few articles directly on Seeking Alpha that I wished to make sure you were aware of as they may be of interest you if you enjoy my own approach to looking at investing.  I wrote about Warren Buffet's Cancer and what that meant for him and for his Berkshire Hathaway as well as for stocks like Varian (VAR), Theragenics (TGX) and Intuitive Surgical (ISRG).  It is an interesting read and hopefully may give you some insight on the disease as well as investments that are related to the treatment. Full disclosure, I own some shares of ISRG in my Covestor Healthcare Model.

Prior to the earnings announcement, I took a look at Merck (MRK).  I do not have any stock in Merck at this time,  but wrote up my thoughts of the company and actually while the company did end up exceeding expectations on earnings, still had some issues with underlying revenue growth.  Sometimes growth stocks evolve into dividend and income stocks and there is nothing wrong with that.  But it isn't my own particular 'cup of tea'.  Or should I say medicine.

Finally I wrote a small review of Nordstrom (JWN).  I own shares in my new Covestor model called 'Sustained Momentum'.  (I need to do a separate blog entry all about that model in the near future.)  My own personal purchase of this stock was about as Peter Lynch as I have ever gotten :).  It's a great stock and it has been on a tear recently.

In my own mind, I would like this blog to be a bit looser and more casual.  Sort of Jeans and a Tee-shirt I guess.  Like my own article on my stock club, which wasn't particularly an analysis as it was a sharing of my own life with you the reader, that's where I would like this blog to go.  I don't want to worry about spelling, grammar, even being politically correct.  I do want to be able to even share political ideas that are important to me as well.  I might even lose some of my readers here.

I shall do analyses here also, but shall be writing more over at Seeking Alpha.  I seem to have a larger audience in that location.  As you can see, even at 57 my life and my blog is still a work in process.

Thank you so much for visiting and supporting my own interest in investing and sharing ideas and perspectives.  

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 7:54 AM CDT | Post Comment | Permalink
Sunday, 15 April 2012
McKesson (MCK)

Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I wanted to share with you what I call a 'swap' in my Covestor Healthcare Model last week.  Centene (CNC) shares swooned last week after they lost a contract for the Ohio Department of Job and Family Services. I sold my shares at $43.49 and the stock already has bounced back to a slightly higher level!


I cannot deny that I have a little seller's remorse, but I have also noticed that stocks after a sharp decline often have a bounce higher, but way once again move lower into the future. 

Anyhow, I picked up some shares of McKesson (MCK) with the proceeds.  One of the first times I reviewed McKesson was back on January 1, 2004, literally over 8 years ago right here on this blog! (The years have really flown by here!)  

At that time the stock was trading at $32.16.  MCK closed at $90.48 on 4/13/12, so the stock really has done very well since that post.

Let's take a closer look at MCK and let's see if it is still was wise to pick up shares now that the stock has nearly tripled in price since I first visited it!

According to the Yahoo "Profile" on McKesson, the company

"...delivers medicines, pharmaceutical supplies, information, and care management products and services for the healthcare industry."

Unlike Centene (CNC) which suffered from a loss of a contract, McKesson (MCK) has been strong recently due to a continuance of a contract with the Department of Veteran affairs (VA).

In terms of its latest quarter,  McKesson reported their 3rd fiscal quarter (ended December 31, 2011) on January 30, 2012.   As Motley Fool pointed out on January 31, 2012, they had strong results with revenue growth of 9.2% coming in at $30.84 billion ahead of last year's $28.20 billion and exceeding analysts' expectations of $30.19 billion.

The company reported earnings of $1.40 ahead of estimates of $1.38 on same basis.  GAAP earnings of $1.20 were 100% higher than the prior year's $.60/share result.  

In terms of longer-term results, reviewing the Morningstar.com "Financials" on McKesson, we can see that revenue has steadily grown from $93.0 billion in 2007 to $112.1 billion in 2011 and $119.9 billion in the trailing twelve months (TTM).   Earnings have grown but somewhat less consistently from $2.99/share in 2007 to $4.57 in 2011 and $5.13/share in the TTM. 

The company has been retiring shares through buybacks with 305 million shares outstanding in 2007, 263 million shares in 2011 and 254 million in the TTM.  The company announced another $650 million in stock repurchases on January 31, 2012. 

Morningstar reports McKesson with $22.4 billion in current assets and $18.7 billion in current liabilities for a current ratio of 1.20.  The company has also grown its free cash flow which has increased from $1.2 billion in 2007 to $2.0 billion in 2011 and $2.3 billion in the trailing twelve months.

Examining the valuation of the stock, we can see from the Yahoo "Key Statistics" page, that McKesson is a large cap stock with a market capitalization of $22.27 billion. 

The trailing P/E is reported at 17.64 with a forward P/E of 12.57.  With solid growth expected the PEG Ratio (5 yr expected ) works out to a very reasonable 0.95 indicating reasonable valuation.

Yahoo reports 246.10 million shares outstanding with 245.30 million that float.  As of March 30, 2012, there were 1.88 million shares out short with a very modest short interest ratio of 1.00 (well below my own arbitrary 3 day rule for significance). 

McKesson pays a modest dividend with a forward dividend yield of 0.90%.  The company last split its stock in January, 1998, when it declared a 2:1 stock split.

McKesson is a solid stock for my portfolio and belongs in this blog.  Summarizing a few findings here, the stock recently reported a renewal of a very significant pharmaceutical contract with the Veterans Administration, the latest quarterly report was strong with growth in revenue and earnings that both exceeded expectations.  Technically the stock has a strong chart going back for at least eight years.  They have steadily grown their revenue, earnings (not quite as steady), and grown their free cash flow the past five years.  Meanwhile they have bought back shares reducing the float and increasing shareholder value while maintaining a dividend and a strong balance sheet.  The stock is modestly priced and considering estimated growth, the PEG is under 1.0 which is not a common finding in the stocks that I review on this blog.

My hand isn't as steady when bad news derails one or more of my holdings.  I am relatively quick to sell on this news and even though Centene (CNC) may turn out to be a terrific stock long term, it appears that McKesson (MCK) is also a good choice.  I shall be keeping Centene on my 'watch list' and may well revisit this holding in the future!

Thanks again for visiting here.  If you have any comments or questions, please feel free to leave them right here.  

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 10:06 PM CDT | Post Comment | Permalink
Wednesday, 11 April 2012
Which Auto Parts Stock Should my Stock Club Buy?

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

In about 2 1/2 hours my Grounded Investment Club (named after the Coffee Shop where most of the members hang out) shall be meeting.  Last month I suggested that the club take a look at the auto parts stores.  I have some shares in my Covestor Buy and Hold Model in Genuine Auto Parts (GPC), and have smaller positions in Autozone (AZO), O'Reilly Automotive (ORLY), and Advance Auto Parts (AAP) in my personal trading account. But the Secretary of the club, Rick A. tasked me to pick one for the club and now at 3:17 pm (with the meeting starting at 5:30) I haven't done so yet.  So with the Club and my readers in mind let's take a quick look at these four companies and let's see if I can narrow this down in any rational fashion.

For ease of this, let's concentrate on the parameters of value, fundamentals and technicals. From my perspective all of these companies have virtually been 'on fire' demonstrating very strong price appreciation this past year.

For value, to keep things simple (It is now 3:20 and getting later!), we shall use the p/e, price/sales and the PEG ratio to consider value in terms of price compared to the earnings as well as the PEG which allows us to adjust for future earnings.  I will throw in the Dividend Yield into this section which is generally attractive to any value investor.

GENUINE PARTS:  P/E of 17.29, p/s of 0.75, PEG of 1.86, forward yield 3.2%

AUTOZONE:  P/E of 17.59, p/s of 1.75, PEG of 1.06, no dividend

O'REILLY: P/E of 25.29, p/s of 2.01, PEG of 1.23, no dividend

ADVANCE AUTO PARTS: P/E of 17.55, p/s of 1.04, PEG of 1.05, forward yield of 0.3%

In this comparison, I would have to vote for Genuine Parts (GPC) which has the lowest p/e, the best price/sales, and the best yield.  However, you pay a bit more for the growth with the PEG being higher than the others in this group.  From my perspective, the investor makes up for that with a real dividend.

OK it is 3:35 and I have about an hour and a half to finish the other comparisons....

Fundamentals. Let's take a look at the latest quarterly report for each, the Morningstar trend on revenue and earnings growth, free cash flow trends, and current ratios.  That's a lot, but I think I have the time to do this.  So no more delays....First of all, the latest quarterly earnings:

GENUINE PARTS:  GPC reported on 2/21/12--revenue came in at $3.01 billion, this was actually under the $3.05 billion expected but 7.4% ahead of last year's $2.81 billion.  Earnings came in at $.86, ahead of the expected $.83/share and 15% higher than last year.

AUTOZONE: AutoZone reported on 2/28/12 with sales increasing 9% to $1.8 billion, in line with estimates.  Earnings came in up 24% to $4.15/share from $3.34/share the prior year and $.11 ahead of estimates.

O'REILLY: ORLY reported on 2/13/12 with revenue of $1.39 billion, under estimates of $1.41 billion but 6.2% ahead of prior year's $1.31 billion result.  GAAP earnings of $.94 (and non-GAAP eps of $.93) were ahead of the single estimate of $.86/share and 29% higher than the prior year.

ADVANCE AUTO PARTS: AAP reported on 2/23/12 a 58% increase in profit to $.90/share up from $.57/share.  This exceeded estimates by $.16/share. Sales grew 4.5% to $1.33 billion from $1.27 billion the prior year. This news story also reported that margins deteriorated 39 basis points to 49% from 49.4% from the prior year same period.  

In terms of the latest quarter AUTOZONE would have to be my selection with strong sales growth and earnings growth.

It is now 3:58 and I have about an hour. 

Let's see if we can look at Morningstar.com and get some figures on consistent revenue growth, earnings growth, free cash flow, and current ratios.

GENUINE PARTS: Revenue has grown from $10.8 billion in 2007 to $12.46 billion in the TTM. Revenue had a dip in 2009. Earnings in 2007 $2.98/share dipped to $2.92 in 2008, $2.50 in 2009, before climbing to $3.00 in 2010 and $3.58 in 2011.  Free cash flow $526 million in 2007 and up and down to 2011 when it came in at $521 million. Current ratio 2.53.

AUTOZONE:  Revenue shows steady growth from $6.17 billion in 2007 to $8.34 billion in TTM.  Earnings show steady growth from $8.53/share in 2007 to $21.44/share in the TTM. Free cash flow has grown from $621 million in 2007 to $966 million in the TTM. AZO has a current ratio of .814.

O'REILLY:  Revenue of $2.52 billion in 2007 increasing steadily to $5.79 billion in 2011.  Earnings increahttp://financials.morningstar.com/income-statement/is.html?t=AAP&region=USA&culture=en-ussed from $1.67/share in 2007, dipped to $1.48 in 2008, then increased steadily to $3.71 in 2011.  Free cash flow has been a bit erratic coming in at $17 million in 2007, dipped all the way to $(130) million in 2009, then increased to $338 million in 2010 and $791 million in 2011.  Morningstar reports a current ratio of 1.65 for 2011.

ADVANCE AUTO PARTS:Revenue growth from $4.8 billion in 2007 to $6.2 billion in 2011. Earnings growth from $2.28/share in 2007 to $5.11/share in 2011.  Free cash flow increasing from $200 million in 2007 to $561 million in 2011.  Current ratio works out to 1.05.

My nod would have to go to O'Reilly (ORLY) in terms of fundamentals with an outstanding record of revenue growth, earnings growth, free cash flow, and a solid balance sheet.

It's now 4:34 and with about 40 minutes to go, let's try to get some charts up here and see if we can find an obvious 'winner'.

GENUINE PARTS:


AUTOZONE:


O'REILLY:


ADVANCE AUTO PARTS:

OK maybe I am reading these charts wrong, but for me GENUINE PARTS wins this competition.  ALL of the charts look terrific, but the others appear a bit over-extended.  What's your take?

It's now 4:45 and I need to wrap this entry up and get down to Java Vino where I will likely have my full order of Lox and Cream Cheese on an everything bagel holding the onions.  OK forget the food.  What's the conclusion?

I shall be reporting back to my stock club that Genuine Parts (GPC) is my choice with the best value, and most reasonable stock chart.  Autozone (AZO) wins on the latest quarter report, and O'Reilly best on fundamentals. Heck they all look terrific.  If I could, I would buy a 'basket' of all four.

Looks like I made it. Now 4:50 and club starts at 5:30.  I have time to finish up my coffee at Starbucks (SBUX) and publish this blog entry.


Thanks so much for stopping by and visiting with me as I get ready for my Stock Club. 

Yours in investing,

 

Bob

-------------

P.S. I got to my club by 5:25 (Central Time of course) and found we had a little cash in the till.  My club dipped their toes into the water and purchased 10 shares of Genuine Parts to start us out.   

Here is a picture of the guys: Michael, yours truly, Rick, Steve, and Jerry.  Great friends and fellow investors who aren't quite sure why the world would care about seeing them or I suppose reading about them in my blog.  I don't know why either.  But it is part of my world and that's what blogging is about.

I asked if they wanted to wait while I got this posted but they are off now back to their real world where I shall be rejoining in a sec.  Have a great week my friends!

 

 


Posted by bobsadviceforstocks at 4:19 PM CDT | Post Comment | Permalink
Updated: Wednesday, 11 April 2012 7:20 PM CDT
Sunday, 1 April 2012
W.W. Grainger (GWW)

Hello friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I am now approaching my 3rd anniversary of my "Buy and Hold" model on Covestor which had its inception on April 15, 2009.  Similarly I am approaching my 9th anniversary of my first entry on this blog on May 12, 2003. I would like to thank all of my readers and everyone at Covestor and Seeking Alpha who have supported me and encouraged my blogging. 

This past month I picked up shares of W.W. Grainger (GWW) for my Covestor Buy and Hold Model on March 12, 2012, at a cost of $212.98/share. GWW closed at $214.81 on March 30, 2012, down $(2.74) or (1.26)% on the day, slighly ahead of my own purchase price.  Let's take a closer look at the business, the fundamentals of performance, some of the valuation figures and finally the technicals of the price chart.

According to the Yahoo "Profile" on W.W. Grainger (GWW), the company

"... provides material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, forestry and agriculture equipment, building and home inspection supplies, vehicle and fleet components, fasteners, instruments, welding and shop equipment, and various other items for facilities maintenance market; and services comprising inventory management and energy efficiency solutions. Its customers include small and medium-sized businesses to large corporations, government entities, and other institutions."

How is the business doing?  On March 12, 2012, GWW reported strong February, 2012 sales, with an 18% increase aided by an additional selling day (21), higher prices, and higher volumes.

Examining their latest quarterly report, Grainger (GWW) reported 4th quarter results on January 25, 2012.  Revenue came in at $2.08 billion, ahead of the $2.07 billion analysts were expecting according to FactSet Research, and earnings came in at $148.5 million or $2.04/share, or an adjusted $2.13/share ahead of last year's $132.2 million or $1.83/share while also exceeding expectations of $2.11/share. The company maintained guidance of $9.90 to $10.6/share for the 2012 fiscal year.

Longer-term, Grainger, according to the Morningstar.com 'Financials' has increased its revenue from $6.4 billion in 2007 to $8.07 billion in the trailing twelve months (TTM). During the same period earnings have increased from $4.94/share in 2007 to $9.07/share in the TTM.  Outstanding shares have decreased from 85 million in 2007 to 71 million shares outstanding in the TTM as the company bought back shares steadily during this period.

As of December, 2011, GWW had $2.7 billion in total current assets $.87 billion in total current liabilities for a healthy current ratio of 3.1.  Free cash flow has grown from $271 million in 2007 to $549 million in 2011.

In terms of valuation, using the Yahoo 'Key Statistics' on W.W. Grainger (GWW), we can see that this is a large cap stock with a market capitalization of $15.06 Billion.  The trailing P/E is a bit rich at 23.68 but with continued growth, the forward P/E is estimated (fye Dec 31, 2013) at 17.84 with a PEG Ratio (5 yr expected) working out more reasonable at 1.55. 

The company has 70.1 million shares outstanding with 60.32 million that float.  As of 3/15/12, there were 1.49 million shares out short ahead of my own arbitrary '3 day rule' at 5.60 days or short interest.  The company pays a dividend estimated going forward at $2.64 yielding 1.20%.  The company has a payout ratio of 28% and last had a stock split in 1988 when it split its shares 2:1.

There is little to explain about the technicals on GWW.  Looking at the 'point & figure' chart on Grainger from StockCharts.com, we can see a chart of impressive strength.  After a small correction in April, 2010, from $112/share to a level of $94/share in June, 2010, the stock has soared steadily to its current level of $214.81.  If anything, the chart suggests the stock may well be a bit ahead of itself and ripe for a retesting of support levels at the $170 level.

Recently, the IBD reported how W.W. Grainger (GWW) and Fastenal (FAST) as well as Home Depot and Tractor Supply (TSCO) could well benefit from an economic rebound as they are all involved in the 'nuts and bolts' of business growth. 

While the economic recovery in America is far from certain, there are signs that America is turning around from recession at least into slow growth.  With things picking up, I would have to second the idea that Grainger (GWW) might be a good place to put one's investment dollars.  That certainly was what I did in my own portfolio.

Grainger has a broad range of products serving multiple industries, reported strong February sales figures, came in with a very healthy quarterly report that exceeded expectations and has a track record of growth going back several years at least.  They have a solid balance sheet and are generating increasing free cash flow while reducing their outstanding shares.  These factors generally bode well for shareholders.

Valuation-wise, the company is priced a bit rich with a P/E north of 23, but if growth continues as expected (or perhaps exceeding expectations), this will work out to a PEG just over 1.5 for a relatively reasonable valuation.  The company has a lot of shares out short possibly setting itself up for a squeeze if they continue to do well. 

Technically, the shares have been extremely strong without even a suggestion of weakness for the past 2+ years.  That enough should make you a little cautious.  But I would rather invest in stocks showing persistence of price momentum than the alternative.

Thanks again for stopping by and visiting my blog!  If you have any comments or questions, please feel free to leave them right here.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 9:11 PM CDT | Post Comment | View Comments (1) | Permalink
Updated: Sunday, 1 April 2012 10:47 PM CDT
Wednesday, 28 March 2012
A Reader Writes "Is it time to take some profits on Costco?"

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I received an interesting series of questions today from a reader of mine who wrote:

"Noticed that Costco is flirting with a new 52-week high and has delivered about 22% over the last year and 7% or so YTD.  It's a hugely important stock to a lot of investors. Is it time to take some profits on Costco? If no, why not? How does the stock look from a valuation basis at this point? What new initiatives does management have underway that warrant watching? How does Costco stack up with its competitive set at this point? What does Costco's strong performance say about consumer sentiment?"

That is quite a few questions at once!  But let's take a look at some of these and let's see if I can address them.

Let's first look at the stock chart.  Here is the 'point & figure' chart from Stockcharts.com on Costco (COST):

One of the things that leads me to sell a stock is technical weakness which for me is a chart that looks like it is breaking its presumed upward trend.  There is nothing in the Costco chart above to my amateur eyes that appears to demonstrate anything except continued upward price momentum since bottoming at around $37 in March, 2009.  As I write, COST is trading at $90.42 down $(.87) or (.95)% on the day.  The stock appears to be trading well within its trading range on the chart above.

Costco was just recently added to my Covestor 'Buy & Hold' portfolio on March 7, 2012, at a price of $87.30, just a couple of points below its current price of $90.42.  In general, I do not start 'taking profits' until I have a significant gain resulting in an oversized position within a portfolio.  For me, a significant gain, which I do not have yet, is in the ballpark of a 30% price appreciation.  

The reader asks about 'valuation'.   According to Yahoo, Costco (COST) currently has a P/E of 26.35, a PEG of 1.79, and a Price/Sales ratio of 0.42. Over the past 5 years, Costco has carried a P/E ranging from 15.62 to 27.51 with an average p/e of 23.06.  Thus at least historically, the P/E is a bit rich but not wildly overvalued.

In absolute terms, we can utilize the PEG ratio (called the "Fool Ratio" on Motley Fool)  to determine if we are overpaying for a growth stock.  This can also help us determine if we might wish to sell some of our Costco stock if it appears 'overvalued'.  In this case the PEG is 1.79, above my own preferred range of 1.0 to 1.5.  (Motley Fool even suggests we consider shorting a stock at this level!)

Another way to consider valuation is in terms of the Price/Sales ratio.  Each 'industrial group' of stocks may have its own way of valuing sales.  Back in 2005, Paul Sturm wrote a great article on valuing companies by their relative P/S ratio.  

As Sturm wrote:

"Price/sales analysis can be particularly useful when comparing companies in the same industry. Take supermarkets. P/E ratios are all over the aisle. But the big three (Albertsons, Kroger, Safeway) sell for nearly identical P/S ratios of 0.24." 

But what are the competitors to Costco?

According to the NASDAQ website, Costco's competitors include Amazon (AMZN), Big Lots (BIG), Dollar General (DG), Dollar Tree (DLTR), Family Dollar (FDO), Kohl's (KSS), Target (TGT) and Wal-Mart Stores (WMT) among other.

Recalling that Costco (COST) has a P/E of 26.35, and a P/S of .42, the others have--

Amazon (AMZN): P/E of 147.14, P/S of 1.94

Big Lots (BIG):  P/E of 15.37, P/S of 0.58

Dollar General (DG):  P/E of 20.79, P/S of 1.04

Dollar Tree (DLTR):  P/E of 23.42, P/S of 1.67

Family Dollar (FDO): P/E of 18.07, P/S of 0.79

Kohl's (KSS):  P/E of 11.35, P/S of 0.64

Target (TGT): P/E of 13.58, P/S of 0.56

Wal-Mart (WMT):  P/E of 13.52, P/S of 0.47

Certainly, from the Price/Sales ratio perspective Costco (COST) is the least expensive of the group even though the P/E and the PEG are a bit rich.

In terms of the company's prospects, Zacks Equity Research recently commented on Costco's "Steady Start in 2012".  Pointing out that even removing the effects of higher gas prices and currency fluctuations, the company is reporting same store sales growth of 7%, a very strong performance.

As the Zacks report concludes:

"Given the pros and cons, we maintain our long-term “Neutral” recommendation on the stock. However, Costco holds a Zacks #2 Rank that translates into a short-term “Buy” rating."

The company operates

"...600 warehouses, including 433 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 13 in Japan, 8 in Taiwan, 7 in Korea, and 3 in Australia."

Certainly, there are opportunities for growth internationally as well as domestically with both same store improvements and new locations for new warehouse operations.

On the latest quarter conference call, Costco management pointed out some of their initiatives including a greater presence on the internet with Costco.com, an app for the smartphones, and the opening of 17 new units this year.

At least in the United States, the consumer is 'alive' and if not 'well' at least recovering as these latest numbers report with US retail sales posting their biggest gain in five months in February, 2012.

Costco (COST) with their upscale warehouse sales appeals to the middle class consumer who is still looking for value to stretch their still-limited dollars.   

To summarize, personally I never know when a stock is overpriced as stocks tend to trade much higher than arbitrarily set 'true value'.  Similarly, many stocks will trade much lower than values would suggest.  While COST appears a bit rich in valuation in terms of P/E and PEG at least historically, in terms of Price/Sales it is a great value relative to its competitors.  The company is performing well and growing its sales with same store sales in the high single digits being reported this year. 

Technically the stock appears strong with no evidence of deterioration at least from my amateur perspective looking at the 'point & figure' chart.  

I do believe that it is wise to take portions of oversized profits 'off the table' when they are present.  In other words, it is prudent to sell your gaining stocks slowly and partially and your losing stocks quickly and completely.  I do not have a large gain in this stock as my current holding is only literally days old.  As the economy continues to recover I suspect that Costco will also continue to grow its business as it appears to be in a relatively recession-resistant position in the retail category.

I hope that I have addressed some of the issues you were considering with your questions on Costco (COST).  If not, let me know if you have further thoughts on 'what to do'.  I cannot predict the future nor know when a long-term peak in a stock price has been reached, when it is time to sell a position, and when it is necessarily the right time to keep holding.   I do my best to assemble a group of stocks in a portfolio with charts that look optimistic, fundamentals that appear promising and valuation that is at least reasonable.

Yours in investing,

 

Bob.


Posted by bobsadviceforstocks at 3:34 PM CDT | Post Comment | Permalink
Updated: Wednesday, 28 March 2012 7:27 PM CDT

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