Deep discounters
In times of economic worry, look no further than the cheapest department store for all of your daily necessities. In a lackluster investing climate, it might be good to stay close to the bottom. Big Lots provides all the protection you need from a faltering economy and its stock price doesn’t look too bad.
As people start to realize that finances are getting a bit tight, even the wealthiest of society might be willing to compromise on their spending habits and shift to low end department stores. Discount stores do well in a great and slowing economy. When compared to their competitors, stores like Big Lots might even fare better in a cooling economic climate.
But first to the guts of Big Lots (BIG). Big Lots trades at just 11 times next years earnings and a paltry PEG ratio of .73. The stock shows all the great fundamentals of a value investments, lots of store fronts and a strong business model. The stock is certainly off its highs of $35 per share last May and looks like a great addition to any portfolio. Last time in 2001-2002 when the markets were looking a bit scary, Big Lots managed a gain from $7 per share at its low up to $20 per share in a matter of months. I expect this same kind of growth when the business cycle comes to a halt.
Normally, dollar stores are a great hedge to a falling dollar but I worry that dollar stores might have to change their business model and become two or three dollar stores at this rate. Big Lots has the ability to be a deep discounter, but also charge what it desires for its products rather than shifting its business model from dollar only to any price. Personal experience tells me that shoppers don’t like a dollar store gone plural. Dollars isn’t as marketable as dollar.
For that reason, Big Lots is it. Its trading at a multiyear low and in a great position to benefit from any economic turbulence. With the market already priced for a .5% cut by the FED, market sentiment is already thinking recession, which means growth for Big Lots. Its a buy here.
