There's a Fortune 500 discount retailer that has higher profit margins than both Wal-Mart (SYM: WMT) and Target (SYM: TGT). Meet the new Billion-Dollar Baby.
FRANK SINATRA SAID IT BEST.
When asked to comment on Shirly McLaine's tell-all book he simply said, "It's amazing what a broad will do for a buck." He could just as easily have been talking about shoppers. Or anybody who likes to hunt for bargains. And hunting for bargains is what I do - whether we're talking about groceries or we're talking about stocks.
That's why I'm so excited about this months issue of the Tycoon Report. As a matter of fact I wanted to use my column this week to tell you about the best discount retailer YOU'VE NEVER HEARD OF...
But first some background:
Right now retail is hot. Ever since Ed Lampert made BILLIONS taking K-Mart out of bankruptcy and merging it with Sears (SYM: SHLD) every investor, hedge fund manager and private equity player in the country has been playing catch-up. Just read the Wall Street Journal.
In an article about the industry last week they mentioned that Jones Apparel (SYM: JNY) bought Barney's. Federated (SYM: FD) is buying May (SYM: MAY). And a group of private equity folks just scooped up Toys-R-Us (SYM: TOY). In addition, a large chunk of money has been raised in the anticipation of doing even more deals. What does that tell me? When the front page of the Wall Street Journal is talking about trends than the big money has already been made.
Thankfully for subscribers of the Tycoon Report we were way ahead of the trend. In the past six months we've recommended 3 retailers for one reason and one reason alone - because they were cheap! But now they're getting expensive. So before we could find the next great bargain we needed to take another hard look at the overall industry to see if there was any money to be made.
Here's What We Found:
1. The real-estate plays in retail have already been priced in. That means that most companies with long-held real estate are not worth owning at this point.
2. Niche retailers such as Abercrombie and Fitch (SYM: ANF) already had their super run. Sell them if you still own them.
3. Discount retailers such as Wal-Mart (SYM: WMT) have been stuck in the mud during the past two years.
Not too bad as a start but nothing to write home about. So we had to dig deeper. We decided to look deeper into general merchandise discounters - the group that hasn't made a big move yet. What we found next was pleasantly suprising. Looking at the general merchandise discounters we found a Fortune 500 company that sells products for a dollar. That's right - a "dollar-store."
But what was most impressive us was that this particular dollar store has higher profit margins than both Wal-Mart and Target. In addition, they've averaged higher returns on capital than both companies during the past decade. For example, in 2004 for every $1,000 this company invests into its business it earned almost $180 back.
In contrast, for every $1,000 Wal-Mart invests into its business it earned $150 back. And Target only earns $100 back every time it invests $1,000 into its business! But that's not even the best part. The best part is that this company - which is selling in the low 20's - is selling for roughly the same amount it was five years ago – when the company was half its current size. And we think its poised to double by the end of the year.
Want to know the name of the company we're talking about? It's in this month’s issue of the Tycoon Report which was just released Wednesday. If you're not a subscriber you can find out more very easily by signing up for a free 30-day trial.
CEO, Founder & Director of Editorial Content
The Tycoon Report