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How to Grow a Dollar Tree

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In this column, Malcolm Berko teaches us how to grow a dollar tree.

TAKING STOCK
BY MALCOLM BERKO
RELEASE: WEDNESDAY, DECEMBER 20, 2017

Dollar Tree Growing

How to Grow a Dollar Tree

Dear Mr. Berko:

I recently discovered Dollar Tree, and its prices are awesome. I buy everything there that I can, and I figure we save $65 to $70 a week for my family of six. I’m thinking of buying 150 shares for our joint account and 50 shares for my individual retirement account. What do you think? — FD, Moline, Ill.

Dear FD:

Dollar Tree (DLTR-$109) has Libby’s, Swanson, Armour, Del Monte, Nabisco, Hormel, Betty Crocker, Nestle, Progresso, Lance, Hunt’s, Welch’s, Jimmy Dean, Knorr, Campbell’s, Uncle Ben’s, Kraft, Hefty, Glad, Kleenex, Reynolds, Bounty, Colgate and Crest — plus brand-name soaps, deodorants and shampoos — all for a buck a package. DLTR also sells Tide, Clorox, Downy, Arm & Hammer, Pine Glo and Comet at a buck each. Rather than spend $5 on a birthday card, a Mother’s Day card, a get-well card or a Valentine’s Day card, you can find it for a buck each (sometimes two for a buck) at DLTR. And for a buck apiece, you can buy all sorts of office and school supplies — packages of markers, binders, folders, glue sticks, highlighters, ballpoints, notebooks, tape, weekly planners. Then there are brand-name durable hardware products, housewares, automotive supplies, apparel, accessories, batteries, towels and bedsheets for a dollar bill. Most Dollar Tree stores also have a frozen-food section with meats, vegetables and frozen dinners, all at a buck. At those prices, Washington should demand that everyone who uses food stamps make their purchases at a DLTR store. I guestimate the government could save billions a year in food stamp costs.

[amazon box=”014026468X”]

DLTR has 15,200 locations and 170,000 employees. In 2017, there has been an average of $1.4 million in sales per store. That comes to $22 billion in total revenues, up 10 percent from 2016. And management has finally worked out the integration kinks from its 2015 merger with Family Dollar Stores. The Family Dollar merger should produce over $300 million in cost synergy. Net profit margins have improved nicely in 2017. Long-term debt is falling. Return on capital continues to improve, as do operating margins. DLTR shares have increased by 44 points in 2017, from a low of $65 to $109, despite concerns about hard discounters — including Aldi, Lidl and Amazon’s purchase of Whole Foods. Not even Walmart can sell a large tube of Crest or Colgate or deodorant such as Brut or Arrid for a buck each. Wall Street has liked the merger between Dollar Tree and Family Dollar. DLTR is one of the few retail names expanding its unit locations at a rapid pace. Management expects to add 1,500 new stores next year, and many on the Street think DLTR could have 20,000 locations by 2022, which might produce revenues of $30 billion, with expected gross margins of 35.5 percent, operating margins of 12.5 percent and earnings of $7.05 a share. And it seems that DLTR’s low prices make this company more nearly immune to inflation, recession and negative economic trends.

It appears that management has been able to blend value with convenience — important to millions of lower-income consumers. Resultantly, a growing number of lower-income consumers now consider DLTR as an occasional substitute for mass merchants. And management, looking 10 years into the future, believes that the present corporate structure could easily support 25,000 locations. That shouldn’t be difficult. Its location costs are in areas where real estate is not expensive and rent (averaging $11 a square foot) is below average. The typical retailer pays between $15 and $22 a square foot. Each Dollar Tree store has minimal employee needs — a general manager, one or two people at the register and another to stock the shelves. Imagine Walmart and Costco and other larger merchants that have 55 or more employees per store. As a result, DLTR’s average operating cost per square foot (not including depreciation) is between $36 and $40 and significantly lower than that of Target or Walmart.

DLTR observers believe that in the coming three to four years, the stock could trade at the $150-$170 level, which would be 20 to 21 times anticipated share earnings. I think it’s an outstanding long-term buy.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
COPYRIGHT 2017 CREATORS.COM

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    Deborah Weber

    September 2, 2018 at 2:34 AM

    How can I get Malcolm Burko’s advice on a regular basis? I moved in July and no longer get the newspaper in which I read his column.

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Economy

The Next Generation of Sin Stocks to Ride Out a Bear Market

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The Next Generation of Sin Stocks to Ride Out a Bear Market

While the recent stock market rally has technically pushed the Dow Jones Industrial Average out of a bear market, many investors aren’t convinced it will last.

They expect that once the euphoria surrounding the $2 trillion stimulus plan wears off, the market will resume its slide downward as the economic impact of the coronavirus takes hold in the next few quarters.

Sin stocks, so named because they are things that we should go without but can’t seem to part ways with, are historically a great investment during downturns.

The added stress and uncertainty means an uptick in business for the companies producing these sinful indulgences.

Things like alcohol, cigarettes, weapons and gambling all fall under the umbrella of sin stocks, so companies like Altria (NYSE:MO), Diageo (NYSE:DEO), Sturm Ruger (NYSE:RGR) and MGM Resorts (NYSE:MGM) are all widely considered to be sin stocks.

And while they can make great investments during times of uncertainty, there’s a new breed of sin stocks that could generate even larger returns over the coming months as Americans turn to their (new) favorite vices.

Here’s a short list of “next gen” sin stocks that we expect to do very well.

Marijuana stocks

While this is by no means a “new” vice, it is only in the last few years that it’s been possible to directly invest in companies that produce and sell marijuana. That wasn’t possible during the 2008 financial crisis, so it will be interesting to see how the major players do during their first economic downturn.

Just like smoking, we expect demand to hold up very well, if not increase, during times of turmoil.

Consider the larger companies like Canopy Growth (NYSE:CGC), GW Pharmaceuticals (Nasdaq:GWPH) and Cronos Group (Nasdaq:CRON).

Video Games

Being a “gamer” is a lifestyle now, with livestreaming on YouTube and Twitch and professional Esports leagues formed around the most popular titles like Call of Duty and Overwatch.

Video games are big money now, and the larger production studios will continue to generate massive revenues as the culture grows in the years ahead.

Look at the big studios with strong franchises like Activision Blizzard (Nasdaq:ATVI) which has the Call of Duty and Overwatch franchises and Electronic Arts (Nasdaq:EA) which has the Madden, Battlefield and FIFA franchises.

Social Media Platforms

If you have a child or grandchild under the age of 30, you are probably very aware of the effort it takes to get their attention away from their phones and all the social media apps or platforms that they are using.

Tik-Tok, Twitter, Facebook, and Instagram are all designed to keep users engaged and spending as much time as possible on their platforms. The publicly traded ones are Twitter (NYSE:TWTR) and Facebook, which also owns Instagram (Nasdaq:FB)

While there are no guarantees when it comes to investing, as the coronavirus causes more people to spend time at home, they’ll be spending more time using the products and services of these next generation sin stocks, and that should translate to more revenues and higher profits for the companies.

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Business

Some Wall Street Stocks Profiting from Coronavirus

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Some Wall Street Stocks Profiting from Coronavirus

New York, Mar 4 (EFE).- The coronavirus epidemic has strongly impacted Wall Street, which recently experienced its worst week since the 2008 financial crisis, but it hasn’t been bad news for all stocks, with the shares of a number of companies offering services to people who don’t want to – or are afraid to – leave their homes rising in price and making profits, firms ranging from Zoom to Netflix.

Emerging as a countercurrent to the recent sharp downdraft in stock prices have been firms that facilitate telecommuting, including Zoom Video Communications, which specializes in videoconferences and the shares of which have shot up in price by 69 percent since the start of the year, and Slack Technologies, an internal messaging system that has moved up 20 percent during the same period.

Also benefitting from the coronavirus scare are companies offering home entertainment, including the Netflix streaming platform, shares of which have risen by almost 16 percent this year; Zynga, which develops games that can be played on cellphones, up 15 percent; Twitter, up 9 percent and e-commerce giant Amazon, up almost 5 percent.

So far this year, the main market indicator on Wall Street – the Dow Jones Industrial Average – has lost more than 7 percent of its value, while the S&P500 index has retreated more than 5 percent and the NASDAQ composite index of big tech firms by almost 2 percent, although all three were down even more last week before the latest rally.

Among the firms hardest hit by the spread of the coronavirus are those linked to travel such as the airlines – with American Airlines experiencing accumulated losses of almost 40 percent in its stock price – and others heavily dependent on China for their supply chains or sales, including Microsoft and Apple, which have announced that they will not reach their prior earnings forecasts for this quarter.

Although not specializing in providing products or services such as entertainment for those who are homebound, but still useful in helping prevent the spread of the coronavirus, another firm whose shares have risen in value recently is Clorox, which makes disinfectant products and has climbed by 11 percent in recent weeks.

As of Tuesday, some 93,000 people are known to have been infected with the coronavirus in more than 75 countries around the world, with more than 3,100 having died, the vast majority of them in China although 138 people have been infected in the US and nine have died.

© 2020 EFE News Services (U.S.) Inc.

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Investing

How the Coronavirus Crisis Affects Tanker Shipping And Stocks

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How the Coronavirus Crisis Affects Tanker Shipping And Stocks
Image via Shutterstock

The coronavirus outbreak centered in China continues to worsen. Over 7,800 cases have been reported — already exceeding the 2002-03 SARS outbreak — and over 170 people have died.

Fallout for crude-tanker shipping and public equities took center stage on the quarterly conference call of tanker major Euronav (NYSE: EURN). While the comments on the call were about crude tankers, almost all of them could apply to all modes of shipping.

“This is bad news,” said Euronav CEO Hugo De Stoop. “Let’s not pretend it’s anything but bad news. The impact is definitely uncertain, but in the short term, it’s negative. In the long term, everybody is convinced it will be contained, so you want measures to be as strong as possible now so the virus is contained as quickly as possible,” he said.

Cargo Demand

As previously reported by FreightWaves, the sweeping shutdown of land and air transportation within China and to and from the country will weigh heavily on near-term oil demand given the outsize role China has in global consumption.

Another negative for tanker demand: OPEC is expected to extend production cuts in response to the coronavirus-induced plunge in oil prices.

According to De Stoop, “If we look at other terrible viruses that have spread in the past, what we know for sure is that once they are contained and things go back to normal, they don’t go back to normal. There’s huge stimulus, usually by China but also by other economies, to try to get back a bit of what has been lost during the [epidemic] period.

“So, if you predict that it may take a few months [before the virus is contained], what you will have is a fantastic first quarter — no matter what happens for the rest of the quarter, it will be a great first quarter — then you have summer, which is never the period we count on, and then the chances are we will be back in winter with a super-strong market, so it should be a great year,” he said.

When reporting fourth-quarter results on Thursday, Jan. 30, Euronav disclosed that it had booked 60% of available days for the first quarter for its very large crude carriers (VLCCs, tankers that carry 2 million barrels of crude oil) at an extremely high rate of $89,200 per day, and 51% of available days for its Suezmaxes (tankers that carry 1 million barrels) at $57,500 per day.

In the crude-tanker business, almost all bookings for a particular quarter are done in the prior quarter or the early part of the current quarter. Tanker rates were extremely high in the fourth quarter and first few weeks of 2020.

What De Stoop is saying is that full-year 2020 results should be strong based on exceptional first and fourth quarters (the fourth assuming the virus is contained), even if the coronavirus and seasonality hit the second and third.

Share Pricing

The coronavirus is hitting shipping stocks, including tanker stocks, even more severely than the broader market. Strong fundamentals, exceptional quarterly returns, incremental volumes driven by the new marine-fuel rules — all of those positives are now being erased in the stock market by coronavirus fears.

Euronav is a prime example. It reported net income $160.8 million for the fourth quarter of 2019, up from just $279,000 in the same period the year before. Earnings per share of $0.70 easily topped the consensus forecast for $0.63 per share. Its VLCCs averaged $61,700 per day in the spot market in the most recent quarter, and its Suezmaxes $35,700 per day. These rates, which De Stoop dubbed “remarkable,” were the highest since 2008, before the financial crisis.

And yet, Euronav’s share price was down 4% in the double the average trading volume on the day its results were announced (in mid-day trading, it was down 7%).

“In the first 10 days of January, we were finally getting our share price above NAV [net asset value], which is always our objective,” De Stoop said. “Obviously, we are not happy at all with our share price at the moment.” Investment bank Jefferies estimated that Euronav’s stock is now trading at a 24% discount to NAV.

De Stoop argued that the share decline creates “a fantastic entry point in tanker shipping companies. With Euronav, you have a guarantee to be paid with the dividends, and if that upside [following virus containment] doesn’t come as quickly as I just expressed, you are in a company with a super-strong balance sheet that can weather any storm. So yes, this [virus] is terrible news. It’s completely unexpected. But quite frankly, if I was an investor and I was attracted by this sector, I know where I would put my money.”

Time Charters

Asked whether the balance could shift toward more time charters as opposed to spot voyage contracts, De Stoop again brought up the coronavirus.

“The volume of time charters in the market is very thin. There have been even fewer opportunities in the last three to four months simply because the market has been extremely volatile. It was quickly going to $100,000 a day and then suddenly there was a massive drop [to around $45,000 a day]. So, everybody is looking each other in the eyes, and thinking on one side [a proposed time-charter rate] is too high and the other side saying it’s too low.

“We need to see a little bit more stability. And I think that because of the events affecting the market at this moment — and we spoke about the virus— it’s just too unpredictable for people to start signing long-term contracts,” he said.

Asset Values

Discussing potential “positives” of the outbreak, De Stoop pointed to the extremely high secondhand VLCC prices recorded in early January.

He noted that secondhand VLCCs have been sold for $107 million, versus a newbuilding contract price of $90 million. “I think those prices were probably exacerbated by the excitement around the rates and quite frankly we don’t think they were justified,” he said.

He noted that $90 million newbuilding price is unlikely to appreciate further because of the low orders at the yards. Owners are unusually reluctant to order newbuilds due to ongoing uncertainty over future emissions standards. De Stoop said the newbuild price should “anchor” the secondhand values, which are at premium to newbuilding pricing in a strong market (because second-hand purchases can earn immediately; a newbuild takes 14 months to deliver).

The implication is that the newbuilding price anchor combined with weaker sentiment due to lower spot rates and the coronavirus fears should serve to either maintain or reduce secondhand values.

Buybacks

Euronav bought back $30 million of its own stock last year. It has targeted a return of 80% of quarterly net income to shareholders through dividends and/or buybacks. But the buyback aspect of the equation faces new uncertainty due to the coronavirus.

“The philosophy of this company has always been the same,” said the CEO. “We don’t rush to buy back our shares. If there is weakness in the share price, we want to see if it’s a temporary weakness or whether it’s more permanent. If it’s more permanent, then obviously we’d think very seriously about it [share buybacks].

“We’re disappointed about what’s going on at the moment, but we understand there are exceptional circumstances around that. Before deploying capital for share repurchases, we need to see how long and how deep it will go. Because if you buy back today, maybe tomorrow it will be weaker. If [share-price weakness] is deeper tomorrow, you’d better wait before deploying your capital.”

He continued, “Let’s see how capital markets react to this virus and the continuous flow of news we’re going to receive. Let’s see what happens to tanker markets and tanker values and where we are [in the share price] compared to NAV.”

Takeaways For Tanker Stocks

The comments on the Euronav call were negative in general for tanker stocks, which are falling across the board.

Shipping stocks are valued in relation to NAV, and the most important variable of NAV is the market value of the ships in the fleet. If the coronavirus and other factors either cap or decrease tanker asset values, it’s bad for stock prices.

Secured revenue streams via time charters at attractive rates are a positive for tanker companies. If coronavirus uncertainty reduces the ability to sign such contracts, it’s another negative.

There are also conflicts between De Stoop’s statement that the crisis creates “a fantastic entry point” and some of his other comments on the call. First, if tanker rates aren’t likely to recover until next winter, assuming virus containment, why buy shares now?

Second, if Euronav itself is openly hesitant to buy its own shares specifically because states on the record that “you’d better wait” to see how the coronavirus situation develops, why shouldn’t individual investors wait as well?

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