Editor's Note: In this edition of "360 Degrees,"
commentators take a closer look at discount retailer
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When Takeover Buzz BitesBy James Cramer
This was originally published on RealMoney on Nov. 29 at 10:22 a.m. ET.
Dollar General says it all about buying names based on takeover rumors.
Yesterday one of the tip sheet guys who reports on potential mergers came on
and said that Dollar General might be getting a takeover bid. I dreaded having to comment on it because if it didn't come through, you knew people who bought it would be angry as all get out.
Sure enough, they put the big kibosh on the takeover talks and it's rolling over. Fortunately, the company's doing OK, but unfortunately I believe buying stock
someone says there is about to be a takeover is a sure prescription for losing money
even if the fundamentals are good
Just a good lesson about what not to do in this game.
Mark your calendar -- I've lined up two book-signing events for
Jim Cramer's Mad Money: Watch TV, Get Rich
and I want to see you there! On Monday, Dec. 4, come to the
Barnes & Noble
in Clifton, N.J. (395 Route 3 East) at 7:30 p.m. EST for some one-on-one with me. If you can't make that, I'll be in Borders Books and Music (290 Commons Way) of Bridgewater, N.J., just two nights later, Wednesday, Dec. 6, at 7 p.m. EST.
At the time of publication, Cramer had no positions in stock mentioned.
Bad Medicine at Dollar General
By David Peltier
This was originally published on RealMoney on Nov. 29 at 10:04 a.m. ET.
opened lower this morning, after rumors of a leveraged buyout bid didn't materialize overnight.
That said, I believe the retailer's restructuring plans, announced this morning, highlight why the stock can continue to push toward the high teens over the coming months.
Besides pledging to buy back $500 million worth of stock (30 million of 312 million shares outstanding) over the next two years, the company said it will close about 400 underperforming stores next year. Dollar General also plans to decelerate its new-store-opening plans in 2007 and 2008 to 300 to 400 stores a year, from 600 in 2006. The company now operates 8,276 stores across the country, compared with 6,300 for its closest competitor
The decision to cut back on square footage is often a tough pill to swallow for retailers. That said,
and other office retailers proved a few years ago that once a good business has become oversaturated, you can cut back on the excess and still be rewarded by Wall Street. Take a look at the charts. Shares of Staples,
have not looked back ever since these companies began to right-size their store bases.
Wall Street is obsessed with growth, but Dollar General has clearly hit a wall, with earnings expected to drop 19% this year to 88 cents a share. That marks the only annual decline since the economy narrowly missed entering a recession back in 2001.
Dollar General's stock may not react as quickly or as much as the office retailers did a few years back, but all in all, I believe the discount retailer will ultimately benefit from swallowing its bad-tasting medicine today.
In keeping with TSC's editorial policy, David Peltier doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.
Dollar General: A Technical View
By Dan Fitzpatrick
Since breaking out of a tight volatility squeeze at $14 a few weeks ago, Dollar General has been strong, consolidating between around $15.50 and $16.50. But today's high-volume reversal of yesterday's rally really puts the breakout in jeopardy. With the stock trading so near support, there's really no reason to sell now.
For four of the past five trading days, $15.50 has been the limit of selling pressure. But I'd keep a stop just below that level because if that fails to hold the stock, the next logical level of demand is down at $14, where the
price-by-volume bar illustrates the high level of trading that has occurred at that level. But let's check out the weekly chart to get a better view of the action.
Same story, different time frame. Dollar General broke above a multi-year resistance line last week. But it's now back to test that breakout. The relative strength index, or RSI, has confirmed the trend reversal by pushing back above the midline for the first time in more than a year. But watch this price level closely. If the stock closes back below this "prior resistance-current support" line, then I'd take my profits and wait for a test of $14 before shopping there again.
At time of publication, Fitzpatrick had no positions in any of the stocks mentioned.