Everybody wants to save money and with a recession looming that becomes even more critical.
I hate to go to the store and walk out with a couple of bags and a hole in my wallet. It seems like every major retailer is marking up prices to compensate for slowing sales.
In today's call recommendation we have a company that makes a business out of buying everything as cheap as possible and selling to customers as cheap as possible. No, it is not Wal-Mart. I am talking about Dollar Tree.
The company has been sold over the last month in a post split depression phase but I think that is about over. Typically when companies split their stock the new share of stock is considered a dividend and taxed accordingly. Funds and individuals can sell those new shares at a reduced tax rate. That selling immediately after a split causes a post split depression. With dividend tax hikes a real potential for 2013 we have seen a stronger than normal post split depression on DLTR. With shares resting on long term support we should see new buyers in the market.
James is on vacation this week.
NEW DIRECTIONAL CALL PLAYS
Dollar Tree - DLTR - close: 50.63 change: +.62
Stop Loss: 49.50
Time Frame: 3-4 weeks
New Positions: Yes, see below
Why We Like It:
Dollar Tree is a dollar store. In these times of economic stress and high unemployment consumers are always looking for a way to stretch their dollars. Shopping at a store like Dollar Tree is a great way to save with items priced 35% to 50% below normal retail in a regular store.
Dollar Tree has a profit margin of 7.39% overall compared to Wal-Mart at 3.68%, Target at 4.68% and Costco at 1.73%. The downside is that Dollar Tree does not have all products all the time. Consumers have learned to live with that limitation.
We saw consumer sentiment decline in July to the lows of the year and the risk of recession rose to the highs for the year. This makes the dollar stores even more attractive.
With the market in turmoil and no solid trend institutions will be looking for solid, under loved, companies for their investable cash. Dollar Tree has 45% institutional ownership with only a 2.74% float.
DLTR has limited exposure to Europe or to currency conversion issues currently impacting international companies. They recently split the stock 2:1 on June 26th and companies that split normally regain the prior price ($110) within 12 months. That rebound has not yet appeared.
The 100-day average has been strong support since early 2011. That average is $50.65 and the stock closed at $50.64 today.
The stock bounced at the open this morning thanks to the higher than expected retail sales for July. Resistance is $51. I am recommending we enter the position with a trade at $51.25.
Trigger: Enter only with A DLTR trade at $51.25
- Suggested Positions -
Position: Buy Sept $52.50 Call (DLTR1222I52.5), currently $1.60
Entry on UNOPENED xx at $ xx.xx
Average Daily Volume = 1.5 million
Listed on Aug 2, 2012
NEW DIRECTIONAL PUT PLAYS
No new bearish plays today