Discount Retailers, From Leaders to Laggards

NEW YORK (TheStreet) -- Discount retailers have not participated in the Santa Claus rally. One of the nine stocks I am profiling today set its 2012 high on March 27, six topped out between June 14 and Sept. 21, another peaked on Oct. 16, and the ninth set its high recently on Dec. 5.

All nine discount retailers are rated a buy according to www.ValuEngine.com, with four undervalued by double-digit percentages. Six are higher by double-digit percentages over the last 12 months and only one is lower by more than 20%. Market volatility is projected to decline over the next 12 months with projected gains between 6.5% and 11.1%, all within the 5% to 12% range of stocks rated "four-engine" or buy according to ValuEngine. The trailing 12 month price-to-earnings ratios are reasonable for eight of nine P/E between 10.5 and 17.9 with the ninth having an elevated P/E of 23.8.

Six of the nine stocks I am profiling today were covered in my Oct. 17 post, Analyzing the Retail Stock Bubble. These six were also profiled on Nov. 29 in my post, Retail Bubble Stocks Play On Earnings Momentum.

The retail-wholesale sector is 10.8% overvalued with the discount & variety industry 11.8% overvalued.

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: The price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC limit order to sell on strength.

Big Lots Inc ( BIG) ($27.65): Set a multi-year high at $47.22 on March 27. BIG has an oversold weekly chart profile needing a weekly close above its five-week modified moving average at $28.75 to gain upward momentum. The stock is close to its 52-week low with my monthly value level at $23.68 with a weekly pivot at $27.13 and semiannual risky level at $30.88.

Costco Wholesale ( COST) ($97.72 vs. $102.58 on Nov. 29): Set an all-time high at $105.97 on Dec. 5. The weekly chart shifts to neutral on a close this week below its five-week MMA at $98.32. My annual value level is $89.71 with a weekly pivot at $97.55 and a monthly risky level at $102.54.

Dollar General ( DG) ($44.39 vs. $49.58 on Nov. 29): Set an all-time high at $56.04 on July 7. The weekly chart profile is negative with the five-week MMA at $47.82. My semiannual value level is $39.16 with my weekly pivot at $46.59 and semiannual risky level at $53.23.

Dollar Tree ( DLTR) ($38.65 vs. $41.42 on Nov. 29): Set an all-time high at $56.81 on June 20. The weekly chart is negative with the five-week MMA at $40.80. My weekly pivot is $38.57 with my semiannual risky level at $43.02.

Family Dollar ( FDO) ($66.48 vs. $68.52 on Oct. 17): Set an all-time high at $74.73 on June 14. The weekly chart shifts to negative on a close this week below the five-week MMA at $67.99. My semiannual value level is $62.16 with this week's risky level at $69.82.

Ross Stores ( ROST) ($54.41): Set an all-time high at $70.82 on Aug. 20. The weekly chart is oversold with the five-week MMA at $57.25. My annual value level is $50.77 with a weekly pivot at $52.18 and the 50-day SMA at $58.93.

Target ( TGT) ($60.54): Set a multi-year high at $65.80 on Sept. 21 with the 200-day simple moving average at $60.33, which is a key support. The weekly chart remains negative with the five-week MMA at $62.48. My quarterly value level is $57.83 with my annual risky level at $63.69.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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