Still Big Money Left To Be Made In Big Lots

| About: Big Lots, (BIG)

The first quarter turned out to be the best start to a year since 1998. In reviewing my portfolio, I am especially pleased with my selections in the small cap space that turned out to be big winners in the quarter, including SciClone (SCLN), Crimson Exploration (CXPO) and GeoEye (GEOY). The only portions of my portfolio that did not perform as well as I would like are some of my energy positions and my small hedged short positions.

Overall, it was a very solid quarter. One thing I did notice during my analysis of the portfolio is the lack of allocation to the consumer discretionary space. I still believe rising gas prices are going to impact this sector, especially as we get to the driving season. However, there are a few stocks that I do not believe will be impacted that still offer compelling valuations. One of these I plan to add to my portfolio at the start of the second quarter is Big Lots (BIG). It sold off late in the week on some news of some insider selling, but looks to be in bargain territory and is selling at lower valuations than competitors in low end retailing space such as Wal-Mart (WMT).

Big Lots - "Big Lots, Inc., through its subsidiaries, operates as a broadline closeout retailer in the United States and Canada. The company offers products under various merchandising categories, such as consumables, including food, health and beauty, plastics, paper, chemical, and pet departments; furniture category comprising upholstery, mattresses, ready-to-assemble, and case goods departments; home category that consists of domestics, stationery, and home decorative departments; and seasonal category, which includes the lawn and garden, Christmas, summer, and other holiday departments.". (Business description from Yahoo Finance)

Seven reasons Big Lots has further appreciation ahead of it $43 a share:

  • EPS is projected to show solid growth. The company made $2.99 a share in its just completed fiscal year. Analysts expect Big Lots to post earnings of $3.51 this year and $3.98 next.

  • The company has no stores in Europe, but could benefit from the continuing crisis there if slow growth drives down the euro; lowering its import costs for its goods that come from the continent.

  • Consensus earnings estimates for this year and next have significantly increased over the past two months.

  • Despite achieving almost 20% earnings growth annually on average over the past five years, BIG does not get much appreciation in the investor community. It is selling for less than 11 times forward earnings and a five year projected PEG of under 1 (.92).

  • The stock is cheap at just around 9 times operating cash flow and 55% of annual revenues.

  • The mean analysts' price target for the 12 analysts that cover the company is $50 a share.

  • Big Lot's last earnings report was solid as it beat estimates and guided higher.

Disclosure: I am long CXPO, GEOY.

Additional disclosure: May initiate long position in BIG over next 72 hours.