Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.
Big Lots Inc. (NYSE: BIG) is a favorite conservative idea from David Fried, editor of The Buyback Letter. He explains, "Investors should indulge their 'inner bargain hunter' and put the nation's largest closeout retailer, Big Lots, in their stock shopping basket.
"Shopping -- and particularly deal hunting -- continue to be hugely popular pastimes, and discount stores are a good pick in a crummy or waffling economy. The company keeps a flexible inventory, has well-located and plentiful retail locations, and its sheer size ($2.5 billion market cap) gives it international buying power smaller chains cannot match.
"A new CEO has focused Big Lots, closing underperforming stores and introducing a new goal to encourage existing customers to spend more per visit. This strategy, called 'raise the ring,' has revived sales growth and paid off in improved earnings.
"In the third quarter of 2006, the company posted an unexpected quarterly profit (income of $0.02 a share compared to a year-before loss of $0.17 a share). Same-store comps were up about 6% and BIG even revised upwards its fourth-quarter and full-year profit forecast twice in the last three months of 2006.
"What has also caught my attention was a $150 million stock buyback program that was sized to approximate the company's free cash flow. The stated goal is to use buybacks as a way to build value for shareholders. Shares outstanding have declined 4.3% over the past 12 months. My bet is that management knows the real bargain going forward is in the stock price right now."
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