Everyone likes junk food.

But in a recession, the Fritos and Cheetos start looking like your best friends. And that's why I like 7-Eleven ( SE) here.

Same-store sales are growing rapidly, primarily behind rising sales of cigarettes, coffee and cold drinks. In September, which was otherwise one of the worst months for retailers in years, 7-Eleven's same-store merchandise sales jumped 5.8% from a year ago. That trend continued last month, as October same-store sales jumped 5.2%.

And that's not all. In addition to peddling Twinkies, these guys sell gas -- lots of it, about $3 billion annually. And going forward, although this business constitutes only about 28% of net revenue, I'm convinced that it can be a major driver behind earnings growth.

Why am I so pumped? Simple. As the price of gasoline comes down (it plunged to $1.35 in October, from $1.58 last year), margins will actually expand as stations push their spread up a little bit. Yet another obvious benefit of lower gas prices is that they draw in more customers, who in turn will spend more on doughnuts and other high-fiber foods.

The Stock
7-Eleven (SE:NYSE)
Recent Stock Price: $11.07
52-Wk Range: $8-$14
P/E Ratio: 14.36
Market Cap: $1.16 billion
Float: 23.1 million shares
Short Interest Ratio: 2.62
Institutional Ownership: 6%
Source: Yahoo! Finance

Folks, 7-Eleven trades at just 13 times 2002 earnings estimates (of 86 cents a share). That's darn cheap considering that 7-Eleven is the industry leader. Moreover, the sell side is conservatively estimating that earnings will grow at 13% or more for the next five years.

The Stats
Year Revenue EPS
1999 $8.35 billion $0.91
2000 9.45 0.98
2001* 9.94 0.78
2002* 10.06 0.86
*Thomson Financial/First Call est.
Source: Company reports

Put simply, I think that this is a great entry point for the stock. Given the recent strength in cigarette and beverage sales, as well as improving gasoline margins, the sense I get is that 2002 estimates are light by perhaps as much as 3 cents to 4 cents. I think we are looking at a $15 stock at a minimum within the next year.

(And hey, if you like stocks like these, be sure to check out my newsletter, The Era of Value. Click below for details, and get on board the value train!)

In keeping with TSC's editorial policy, Glenn Curtis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Curtis welcomes your feedback and invites you to send it to Glenn Curtis.