With the end of the year fast approaching, it's time to start putting together "best of" and "worst of" lists for 2008. This entry is a little bit of both, but it's admittedly heavy on the "worst of." Among the current members of the S&P 500 Index (SPX), just 11 were sitting on a year-to-date gain as of the close of trading on Monday, November 24. Since Big Lots (NYSE: BIG) is unchanged, that means we have a whopping 488 securities sitting on a loss for the year.
Let's start with the bad news first. Among the worst-performing stocks on the SPX, the six top spots are claimed by stocks in the Insurance and Real Estate sectors. General Growth Properties (NYSE: GGP) has the dubious honor of dropping nearly 98% on the year, and -- not surprisingly -- American International Group (NYSE: AIG) isn't far behind.
This morning, BIG opened at $32.56. So far today the stock has hit a low of $30.21 and a high of $32.60. As of 12:45, BIG is trading at $31.69, down $1.37 (-4.1%). The chart for BIG looks neutral and S&P gives BIG a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $35 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in 4 weeks as long as BIG is below $35 at September expiration. Big Lots would have to rise by more than 11% before we would start to lose money. Learn more about this type of trade here.
Big Lots (NYSE: BIG) is the largest broadline closeout retailer in the United States. Stores offer such staples as food, health and beauty products, plastics, furniture, toys, lawn tools, electronics, apparel and small appliances. The goods are generally products that have been overproduced, or discontinued, and are typically offered at 20-40 percent below discounters' prices. The company currently operates 1,354 stores in 47 states. Wholesale operations are conducted through Big Lots Wholesale outlets.
The firm pleased investors last week, when it reported Q1 EPS of 42 cents and revenues of $1.15 billion. Analysts had been expecting 36 cents and $1.14 billion. Management also guided Q2 EPS to 21-25 cents (23 cent consensus) and FY08 EPS to $1.80-$1.90 ($1.78 consensus). Wedbush Morgan subsequently reiterated its "strong buy" rating on the shares and Piper Jaffray upped its recommendation to "buy".
Today's stock market rally may be more of a relief run than anything, but the end of day strength of late has been hard to ignore. Today we saw a huge drop of almost 9 million barrels of oil that caught traders off guard, but interestingly enough the oil markets dropped considerably. Combine that with a slightly higher revision to Q1 US GDP to +0.9% and all of a sudden the recession isn't looking so serious. These are the major US index closing levels:
It has been a rocky year for Wall Street, but even amid the uncertain market conditions there are some companies that are playing with a lot of cash. In addition, they know how to wisely use their funds, which makes them strong enough to beat any challenge.
One important factor that determines the stability of a company is its corporate cash flow. CNNMoney is looking at stocks with both healthy cash flow and a surplus of cash, which helps them avoid tough situations where they may need to raise their capital (check out its slideshow of these five picks). Another element that CNNMoney takes into account when picking companies is their ability to reinvest cash in ways that assure them a nice profitability.
Let's look at some of the companies that CNNMoney likes:
MOST NOTEWORTHY: Credit Suisse, Masimo and Marvell Tech were today's noteworthy upgrades:
Bear upgraded Credit Suisse Group (NYSE: CS) to Peer Perform from Underperform as they believe the company's balance sheet will stabilize and the company's Private Banking business is holding up well in difficult conditions. Goldman, which raised shares to Neutral from Sell, believes the worst is over regarding the market downturn.
Citigroup upgraded Masimo Corporation (NASDAQ: MASI) to Buy from Hold citing expectations of a strong Q1 report, expected FDA approval for hemoglobin monitoring in 2H08, and valuation.
Marvell Technology Group Ltd (NASDAQ: MRVL) was raised at Friedman Billings to Outperform from Market Perform based on valuation and improved business conditions.
Big Lots (NYSE: BIG) is the largest broadline closeout retailer in the United States. Stores offer such staples as food, health and beauty products, plastics, furniture, toys, lawn tools, electronics, apparel and small appliances. The goods are generally products that have been overproduced, or discontinued, and are typically offered at 20-40 percent below discounters' prices. The company currently operates 1,353 stores in 47 states. Wholesale operations are conducted through Big Lots Wholesale, Consolidated International and Wisconsin Toy outlets. Target (NYSE: TGT) and Wal-Mart (NYSE: WMT) are major competitors.
The firm pleased investors last week, when it reported Q4 EPS of 93 cents and revenues of $1.41 billion. Analysts had been looking for 84 cents and $1.41 billion. Management also guided Q1 EPS to 30-35 cents (26 cent consensus) and FY09 EPS to $1.70-$1.80 ($1.53 consensus). Wedbush Morgan and Soleil subsequently declared the issue a "buy" and issued price targets of $26 (W) and $32 (S).
Big Lots (NYSE: BIG), the nation's largest close-out retailer, posted tremendous and record-setting gains for 3Q 2007. Net income for the quarter totaled $14.3 million or $0.14 per diluted share, a staggering improvement over net income of $1.7 million in 3Q 2006. Big Lots struggled throughout 2006 while putting together a supply chain management system that is now beginning to pay off in big contributions to the bottom line. Big Lots posted this huge rise in net income despite the fact that net sales for 3Q dipped almost 2%.
3Q 2007 operating income grew 10X operating income from 3Q 2006, to $22.7 million from $2.3 million. CEO Steve Fishman credits the vast improvement in operating profit to a much more efficient product distribution system and higher gross margin dollars per square foot.
Deep discount retailers may not offer the most extensive selection of merchandise in town, but they usually have what you are going to want before long and the bargains keep you coming back. A leader in the art of finding and offering the good deals is headquartered in Columbus, Ohio.
Big Lots (NYSE: BIG) is the largest broadline closeout retailer in the U.S. Stores offer such staples as food, health and beauty products, plastics, furniture, toys, lawn tools, electronics, apparel and small appliances. The goods are generally products that have been overproduced, or discontinued, and are typically offered at 20-40 percent below discounters' prices. The company currently operates 1,369 stores in 47 states. Wholesale operations are conducted through Big Lots Wholesale, Consolidated International and Wisconsin Toy outlets. Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) are major competitors.
MOST NOTEWORTHY: Taser Int'l (TASR), Motorola (MOT), Advantest (ATE), STMicroelectronics (STM) and Joy Global (JOYG) were today's noteworthy upgrades:
Merriman upgraded shares of Taser Int'l (NASDAQ: TASR) to Buy from Hold on valuation following the 25% decline in price since late July, accelerating law enforcement demand and upside potential from the recently launched personal TASER C2.
Lehman upgraded shares of Motorola (NYSE: MOT) to Overweight from Equal Weight as they believe increased production and opex progress in Q3 could signal a turnaround at the company's phone unit.
Jefferies upgraded Advantest (NYSE: ATE) to Hold from Underperform on valuation.
STMicroelectronics (NYSE: STM) was upgraded to Market Perform from Underperform on valuation at Bernstein.
Stifel upgraded shares of Joy Global (NASDAQ: JOYG) to Buy from Hold following the in line Q3 report as they believe bad news is reflected in valuation...
OTHER UPGRADES:
Idacorp (NYSE: IDA) was upgraded to Market Perform from Under Perform at Wachovia.
UBS upgraded TDK Corp (NYSE: TDK) to Neutral from Sell.
Wedbush raised Big Lots (NYSE: BIG) to Buy from Hold, with a $35 target, and DSW Inc. (NYSE: DSW) to Hold from Sell, with a $29 target.
LabCorp (NYSE: LH) was upgraded to Outperform from Neutral at Cowen.
MOST NOTEWORTHY: Marvel Entertainment (MVL), AutoZone (AZO), Home Depot (HD), Molson Coors (TAP) and Semtech (SMTC) were some of today's noteworthy upgrades:
Matrix upgraded Marvel Entertainment (NYSE: MVL) to Buy from Hold as they don't think the company's improving performance is reflected in its falling stock price. They think Marvel represents a good entry point at current levels.
Kevin Dann upgraded shares of AutoZone (NYSE: AZO) to Buy from Hold on valuation and highlighted their belief that AutoZone may not be seeing as much sales weakness as investors expect. They recommend taking advantage of the recent share weakness and raised their target to $135 from $125.
Gabelli recommends Home Depot (NYSE: HD) as a long-term buy with a $43 target, upgraded shares from Hold, with the Supply division uncertainty now eliminated. They view the sale positively, even at the lower price.
JP Morgan upgraded Molson Coors (NYSE: TAP) to Overweight from Neutral, and believes Molson will monetize its solid balance sheet and free-cash flow yield to benefit the shareholders. They also consider valuation to be attractive.
Semtech (NASDAQ: SMTC) was upgraded to Outperform from Market Perform at William Blair following the strong Q2 report and outlook...
OTHER UPGRADES:
Big Lots (NYSE: BIG) was upgraded to Market Outperform from Market Perform at Avondale.
MOST NOTEWORTHY: Atheros Communications (ATHR), Analog Devices (ADI), Omniture (OMTR) and TriZetto Group (TZIX) were today's noteworthy initiations:
Oppenheimer expects a seasonally stronger 2H07 out of Atheros Communications (NASDAQ: ATHR) given continued growth from 802.11n design wins and started shares with a Buy rating.
AG Edwards believes Analog Devices (NYSE: ADI) has plenty of room to gain additional market share and started shares with a Buy rating.
Jefferies believes Omniture (NASDAQ: OMTR) is positioned to benefit from the rapid growth of Web analytics, but has near-term valuation concerns, and started shares with a Hold rating.
Deutsche Bank started TriZetto (NASDAQ: TZIX) with a Buy rating, citing the company's diversified product mix and opportunities to drive adoption rate of consumer-driven health plans for their Buy rating...
OTHER INITIATIONS:
The Banc of America assumed the entertainment sector with a Market Weight rating and assumed coverage of Time Warner (NYSE: TWX) and News Corp (NYSE: NWS.A) with Buy ratings and a $25 target and $26 target, respectively, as well as The Walt Disney Co (NYSE: DIS) and Viacom (NYSE: VIA.B) with Neutral ratings and a $37 target and $43 target, respectively.
JP Morgan started Big Lots (NYSE: BIG) with a Neutral rating.
There were some retail stocks that ended the trading day yesterday a little higher than last Friday, with retailers like Big Lots Inc. (NYSE: BIG), Kohl's Corp. (NYSE: KSS) and Wal-Mart Stores (NYSE: WMT) leading the way. Why? Well, it had nothing to do with any significant sales results from those three retailers, but a survey did show that consumers were feeling more confident in May. That's right -- a survey caused some rather large retail stocks to move. Wonder if the surveyors were shorters?
Jokes aside, May consumer confidence did show that May sentiment rose over the April level, which came in as a surprise based on an expected consumer pullback in May due to hike in gas prices. This caused investors to bid up Wal-Mart for some reason. Well, that's neither here nor there -- WMT stock moves when a fly enters the room, right?
Not exactly, but the retailer's fortunes are closely joined at the hip with consumer spending and sentiment measurements since the pulse of retail is so close to Wal-Mart in many respects. Target Corp. (NYSE: TGT) shares were up as well yesterday, so the two largest discount retailers saw modest rises on the backs of the survey results from The Conference Board. Will May same-store sales reflect this short-lived enthusiasm? We only have today and tomorrow left, so stay tuned.
There are plenty of discount and closeout retailers out there, but Big Lots Inc. (NYSE: BIG) has developed a competitive advantage that allows it to compete more effectively and efficiently. Rather than concentrating just on supply chain management to get products where they need to go, on time and at an acceptable price, Big Lots, with 1400 stores, has also developed a financial supply chain to help its vendors, while at the same time helping itself.
Several years ago, Big Lots realized that many of its vendors were having cash flow problems of their own, sometimes affecting their abilities to get products into stores. The vendor's cost of borrowing and lack of access to capital delayed production and shipment. Utilizing a third party, PrimeRevenue, Big Lots partnered with its vendors. All invoices are now posted online within 24 hours through PrimeRevenue. A vendor knows exactly when it will get paid and how much. Vendors can either sell the invoices to a participating financial institution and receive money within 24 hours or wait for full payment. Vendors also get to borrow money based on Big Lots' good credit rating, driving the cost of borrowing down for many vendors. This, in turn, means Big Lots lowers its own cost of goods.
Integrating vendors into its financial supply chain means that Big Lot buyers, who want the best possible price for goods, and vendors who were once reluctant to lower their prices, now work within the same system. Vendors know exactly what and when they will get paid, negating their need to push prices up to cover cash shortfalls. Big Lots estimates it has shaved 4% off the price of goods by eliminating financial inefficiencies in its supply chain. Both sides benefit. Big Lots buyers get better terms and long-term vendor relationships. Vendors get improved cash flow. So far, the program is a success. Big Lots 1Q 2007 comparable sales were up 4.9%, and total sales were up 3.5% to just over $1 billion.
Deep discount retailers may not have exactly what you want right now, but they usually have a lot of what you are going to want before long and the bargains keep you coming back. A leader in the art of finding and offering the good deals is headquartered in Columbus, Ohio.
Big Lots Inc. (NYSE:BIG) is the largest broadline closeout retailer in the United States. Stores offer such staples as food, health and beauty products, plastics, furniture, toys, lawn tools, electronics, apparel and small appliances. The goods are generally products that have been overproduced, or discontinued, and are typically offered at 20-40% below discounters' prices. The company currently operates 1,375 stores in 47 states.
Big Lots pleased investors last week when it reported Q4 EPS of 83 cents and revenues of $1.55 billion. Analysts had been expecting 70 cents and $1.53 billion. Management also guided Q1 EPS to 18-22 cents (16 cent consensus) and FY08 EPS to $1.18-$1.23 ($1.04 consensus).
With the end of the year fast approaching, it's time to start putting together "best of" and "worst of" lists for 2008. This entry is a little bit of both, but it's admittedly heavy on the "worst of." Among the current members of the S&P 500 Index (SPX), just 11 were sitting on a year-to-date gain as of the close of trading on Monday, November 24. Since Big Lots (NYSE: BIG) is unchanged, that means we have a whopping 488 securities sitting on a loss for the year.
It has been a rocky year for Wall Street, but even amid the uncertain market conditions there are some companies that are playing with a lot of cash. In addition, they know how to wisely use their funds, which makes them strong enough to beat any challenge..gif){kind=logo}
Big Lots pleased investors last week when it reported Q4 EPS of 83 cents and revenues of $1.55 billion. Analysts had been expecting 70 cents and $1.53 billion. Management also guided Q1 EPS to 18-22 cents (16 cent consensus) and FY08 EPS to $1.18-$1.23 ($1.04 consensus). 
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