Why I Bought and Sold Buckle on the Same Day

I needn't tell you that the 'nickel in my pocket' from my partial sale of WMS (WMS) yesterday was burning a big hole and waiting to be spent!

If you didn't catch the story about Ford (F) yesterday, I would encourage you to take note of anything that sounds optimistic about the economy. Yesterday Ford related that it was increasing production of the F-150 pickup.

As reported:

Analysts said a sharp drop in gas prices curbed the decline in truck sales.

Ford already announced in October that it planned to restore in January a third shift at its other F-150 plant in Dearborn, Mich. Those roughly 1,000 workers had been laid off earlier this year as the automaker cut production.

The decision to shift workers at the plant in Claycomo near Kansas City to F-150s is continuing that strategy, Kozleski said.

"Despite the challenges in the market, the fullsize pickup remains one of the big sellers in the industry and we are ensuring we have capacity to meet market demand," she said.

Now this isn't about Ford at all. We all know the CEO's of the 'big 3' automakers are back testifying to Congress over their need for federal subsidies to keep them in business. But isn't it somehow reassuring that some part of the auto business, even if it is the F-150 pickup line, is showing some life and growth in the midst of what sounds to be universal despair?

Anyhow, I had that nickel in my pocket Thursday morning. If you aren't a regular reader of my blog, I should explain that my stock portfolio shifts between 5 and 20 positions. I use the performance of my own stocks to determine whether I should be adding a new position or shifting more funds into cash. With a sale of 1/7th of my WMS position at a 30% gain (my first targeted appreciation level), that action generated a 'buy signal' for me and I was on the 'lookout' Thursday morning for a good prospect to add to my portfolio.

Checking first with my favorite starting point, the list of top % gainers, I found that an old favorite of mine, Buckle (BKE) had made the list and was trading at $23.85, up $4.29 or 21.93% on the day. I went ahead and purchased 143 shares of Buckle at $24.3968. I calculated this number of shares by purchasing 125% of the average of my other 5 holdings---as I have written about as my plan for the positions 6-20 in my portfolio---positions that are purchased on 'good news' events.

I say 'old favorite' of mine, because I first wrote up Buckle on this blog on April 8, 2005, and then 'revisited' the stock again on December 23, 2006.

What drove the stock higher Thursday was the announcement before the open of November sales for the four-week period ended November 29, 2008. Unless you are living in a cave, you probably are quite aware of the retail sales slump that we are experiencing in the United States, and the global economic slump the world is working through.

Anyhow, the Buckle reported that November sales overall increased 21.6% to $72.2 million from $59.4 million last year. Pretty solid! But even better was the same-store numbers which Buckle reported that for stores open at least one year, same-store sales during the period climbed 15.0%. Year-to-date, comparable store sales for the 43-week period ended November 29, 2008, increased 22.6% over the same period the prior year. So while the growth wasn't quite at the pace of the prior 6 months, it is still pretty amazing! In addition, the company in the same announcement reported that it was busy rebuying its own shares, acquiring 391,400 shares of stock at an average price of $16.23/share.

If we look at the StockChart 'point & figure' chart on Buckle, we can see that the stock peaked at $42/share back in September, 2008, and dipped to as low as $14 this past November, 2008. The stock is moving higher from that intermediate low point, breaking above prior 'support lines' (the blue line on the graph) at $18.50, and pushing towards resistance at $29.

click to enlarge

Reviewing the Morningstar.com "5-Yr Restated" financials on Buckle, the growth in revenue, earnings, and free cash flow is unabated. The company is paying an increasing dividend and at the same time reducing its outstanding shares. The balance sheet is solid with a current ratio of almost 4. There is nothing not to like on this page.

In fact, if we check the latest quarterly report, the 3rd quarter results were reported just two weeks ago: earnings came in at $0.62/share or $0.64/share removing a one-time charge. This was $0.01 ahead of estimates. Net sales came in at $210.6 million, up from $167.6 million last year. And same-store sales for the quarter came in up 19.1% (!) from last year. Nothing shabby there. In fact, I am a bit perplexed how this company has managed to escape the retail struggles of the other stores at the mall.

Looking at Yahoo "Key Statistics" for a brief update on some valuation numbers, the company has a market cap of $1.1 billion, making it a mid cap stock with a trailing P/E of 11.19. With a forward P/E of only 10.75, the company has a PEG ratio of 0.60 practically screaming to me of great value!

There are 46.46 million shares outstanding but only 24.16 million of them that float. As of 11/11/08, there were 8.74 million shares out short for a short ratio of 7.6 trading days (above my 3 days for significance).

As I noted earlier, the company pays a great dividend of $0.80/share yielding 4.60%. The payout ratio is only 33% giving it ample room to increase it in the future depending of course on future earnings and prospects. In fact, the company just completed a 3:2 stock split on October 31, 2008.

Anyhow, that's the news on my trading portfolio. I do not know if I am seeing the light at the end of the tunnel, but somehow that F-150 report yesterday got me a bit encouraged. And it is nice to see an 'old name' of mine moving higher on good earnings and sales news. Sort of like old times.

Update

Just a very quick note to update you on my Buckle stock, which I absolutely love, but have learned to part ways as "friends".

Doug S. dropped me a not earlier warning me about the technicals, but I used my old strategy in a very difficult and unfriendly market that turned around and headed lower Thursday.

I sold my 143 shares of BKE which were purchased just hours before at $24.3968, at $22.0132. That is more than an 8% loss and being in position 6-20 of my portfolio, it is my loss limit. Anyhow, they are history.

It is unfortunate that a 'favorite' of mine should disappoint like that. But I remain committed to limiting losses, exercising trading discipline, and recognizing trading mistakes as soon as possible. I also am committed to sharing with you my own actual trades as foolish as they may sometimes appear.

Comments

[Swiss Investor:]

My god, this is not a trading market.. just hold shares of companies like this, anything else is just plain stupid, sorry.

2008 Dec 05 09:08 AM

[k45:]

Better check your calculator. And 80 cent dividend at $24 only yields 3.3%, not 4.6%. It has to drop to $17.39 to yield 4.6%.

2008 Dec 05 09:08 AM

[Steve Scott:]

I'm sure you've seen this happen before Bob. Buckle has moved from low 14's two weeks ago to high 24's yesterday. I took profit on 1/3 of my Buckle holdings yesterday and plan to buy them back (and more) after the profit taking is done, hopefully below 20. This is a great company with lots of cash and tremendous growth prospects in front of it. The oversupply of retail space in the US is presenting them with huge opportunities to take over some of the best locations in malls all over the country. This is a stock to own for at least a couple of years but, like everything these days, there will be volatility and trading ranges. I actually expect that Buffett has his eye on these guys.

2008 Dec 05 09:35 AM

[Robert Free...:]

These are all great comments. In general, I agree that in this market, tight 8% loss limits are going to bite you in the rear. The extreme volatility lends itself to buying stocks on valuation and then hanging tight. I am trying very hard to develop a portfolio management system that requires me to sell both on small losses and partial sales on appreciation points. This trade didn't work out at all, did it?

2008 Dec 05 08:20 PM

[granger:]

nice to see P & F in use, I could not invest without it

2008 Dec 07 10:07 AM

[zaparozhe:]

think you should buy an cheap index fund and close your brokerage account - you're just wasting time

Feb 13 11:38 AM