Big Lots, Inc. (BIG)

marc64 (98.29) Submitted: 6/02/08 1:02 PM : Start Price: $30.51 BIG Score: 12.12

I could kick myself for cashing out too early on BIG, and for missing a stellar boost after it reported.

This stock got a huge boost after it reported its latest numbers, that were as good as it gets.

Its share price has mostly stayed up, but today it's down 1.4%, probably on profit taking, or more likely because of an overall negative market sentiment today.

This company has benefited after addressing its nagging weaknesses effectively; macro conditions favor its business model.

Basically, bad news for the consumer, is bad news for a slew of BIGs rival consumer-dependent businesses, but is comparatively good news for BIG itself, both on the revenue side, and on the supply-cost side.

The "big" trend is that the USA consumer is coming up fast and hard against a disposable-income wall, and once state and local governments start to budget-cut for plunging tax receipts, things are going to be bad, sad and ugly for retailers. Can't ignore this, and it will have significant impacts in an economy that depends on consumers for $0.70 of every dollar that changes hands.

This company is one that can actually do much better under dire conditions as the consumer crunch unfolds, by making its mark with its very low prices, and carving out a larger, loyal niche going forward.

Fundamentally, BIG's strength is that it is a profit-making machine. BIG's inventory is bought for a song, and sold only barely below market. BIG's weakness in the past is that its revenue growth has been relatively very weak, and its gross has not kept up. That appears behind BIG at this point, and gives me confidence that there may be some more room to run.

From the cost side, I can see a slew of cash-strapped, high capacity manufacturers unloading Big Lots of inventory on a hurry-up basis, lowering costs for BIG.

I suspect rival, discount retailers will try to lower their prices, but at a hit to their profitability, and investors will notice.

Big will win this contest, and the stock will reflect that.

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