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Now that we're in the summer doldrums of sideways to down markets, I thought it would be a good time to add to my consumer cyclical sector with an apparel retailer. When there is global despair, quality clothes that meet the mass market desire for affordable prices can be a real winner. Hard times lead to a desire to look prosperous, even if the wolf is at the door. A great example of this is Ross Stores (NASDAQ:ROST). Before the Great Recession, Ross Dress For less and dd's DISCOUNTS (dd's stands for deep discounts -- prices below the main Ross stores) were growing well, but not exceptionally. However, with the turmoil in Europe, the slow down in China-including the lack of demand for commodities such as copper and steel-Ross Stores suddenly appears to be a momentum stock, which will not slow down or drop back to bargain P/E ratio. I had placed limit orders ($50) for ROST last fall for 2 of my grandchildren's college funds. The price kept climbing and I bought at the market price, since I couldn't get a bargain before the year ran out. I placed a limit order for myself this year at $56. I just kept waiting and it rose to $60-I bought it on Thursday at $61.89, but today it's $62.47. Momentum stocks are unfamiliar to me, just like Apple (NASDAQ:AAPL). If you want to buy them, pay the last price and hang on for the ride.


(Click to enlarge)

I was asked by Tradevestor in his recent article on Wal-Mart (NYSE:WMT) Vs. Target (NYSE:TGT) Vs. Ross why I would buy such a stock that paid no where near my 4% yield rule. I told him that it was for capital appreciation and downdraft protection, similar to McDonald's (NYSE:MCD). Ross Stores is now a large cap stock with a 13.81B market cap and a P/E ratio of 20.5. The earnings per share growth rate for next year is 18.88%, but the 5 year earnings per share growth rate is projected to be 34.7%. (Data from First Call).

Let's look at the 5-yr dividend reinvestment on this stock:

Stock Date of reinvest Div Rate # Shares Dividend Drip price # Shares pur Total Value Current Yield
Totals 662.75 $511.56 10.64
02/15/12 $0.14 660.94 $92.53 $51.23 1.81 $33,952.49 1.09%
ROST 12/16/11 $0.00 660.94 $0.00 $47.00 .00 $31,064.18 0.00%
11/25/11 $0.11 330.05 $36.31 $85.43 .42 $28,232.20 0.52%
08/31/11 $0.11 329.57 $36.25 $76.55 .47 $25,265.08 0.57%
06/03/11 $0.11 329.12 $36.20 79.11 .46 $26,072.54 0.56%
02/16/11 $0.11 328.61 $36.15 $71.16 .51 $23,419.87 0.62%
12/03/10 $0.08 328.20 $26.26 $65.13 .40 $21,402.22 0.49%
08/31/10 $0.08 327.68 $26.21 $49.63 .53 $16,288.79 0.64%
06/03/10 $0.08 327.21 $26.18 $56.19 .47 $18,412.13 0.57%
02/17/10 $0.08 326.66 $26.13 $47.09 .55 $15,408.34 0.68%
12/04/09 $0.06 326.24 $17.94 $43.63 .41 $14,251.98 0.50%
09/01/09 $0.06 325.85 $17.92 $45.22 .40 $14,752.76 0.49%
06/04/09 $0.06 325.39 $17.90 $39.13 .46 $12,750.43 0.56%
02/18/09 $0.06 324.80 $17.86 $30.16 .59 $9,813.78 0.73%
12/08/08 $0.05 324.26 $15.40 $28.76 .54 $9,341.20 0.66%
09/03/08 $0.05 323.88 $15.38 $40.15 .38 $13,019.15 0.47%
06/12/08 $0.05 323.46 $15.36 $36.50 .42 $11,821.60 0.52%
02/20/08 $0.05 322.92 $15.34 $28.31 .54 $9,157.11 0.67%
12/10/07 $0.04 322.48 $12.09 $27.49 .44 $8,876.98 0.55%
09/05/07 $0.04 322.03 $12.08 $26.90 .45 $8,674.63 0.56%
06/14/07 $0.04 321.64 $12.06 $31.09 .39 $10,011.85 0.48%

It can be seen from the chart that $10k invested on June 14, 2007 would have grown to $33,952.49 through capital appreciation and dividend reinvestment over the 5 year period. This computes out to a 27.69% annual growth rate.

Let's look at this in chart form:


(Click to enlarge)

While looking at the chart, it seems that the dividend yield drops to 0 at the second 2011q4 point. This was a 2/1 stock split as can be seen in the table on 12/16/2011.

Conclusion: When bear markets approach, I find that high growth stocks in resilient sectors, like consumer cyclical are good buffers for the downdraft. They may fall, as in 2008, but they bounce back quickly. It is critical that anyone, especially a retiree does their own due diligence on any investment.

Source: Buy Ross Stores For Rapid Growth And Dividend Appreciation