Big Lots, Dollar General, Costco, Remain Buy Rated

NEW YORK (TheStreet) -- The discount retailers are in the retail-wholesale sector, which is one of the five of 16 sectors that I gave an overweight rating on Tuesday in Cisco Joins List of 11 Buy-Rated Dow Stocks as Fundamentals Deteriorate. On June 3 I wrote, Discount Retailers Track Slow Consumer Spending where I profiled nine buy-rated discount retailers. Today these nine stocks remain buy-rated and seven have traded higher since the end of May.

The headliner this week just as it was three months ago is Dollar General ( DG) which reported quarterly earnings pre-market on Wednesday. This discounter beat EPS estimates by 3 cents earning 77 cents a share. The stock traded to a new multi-year high at $57.42 despite a cautious outlook.

Fundamentally, the stock market remains under a ValuEngine valuation warning with 74.6% of all stocks overvalued, and with 38.0% overvalued by 20% or more. We show 15 of 16 sectors overvalued, 13 by double-digit percentages, with four overvalued by more than 20%. The retail-wholesale sector is overvalued by 19.3%.

Seven of the nine discount retailers rose by 1.7% to 14.9% since the end of May with two declining by 2.6% and 8.6%. Eight of nine are overvalued but by 18.8% or less. At the end of May all nine stocks were above their 200-day SMAs and today two are below on the risk of a reversion to the mean.

Reading the Table

OV/UN Valued: 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: 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: Price at which to enter a GTC limit order to sell on strength.

Big Lots ( BIG) ($34.79) beat EPS estimates by 6 cents earning 31 cents on Aug. 30 and traded to a reaction high at $35.81 on Sept. 3. The 200-day and 50-day SMAs are $33.43 and $34.63 with my quarterly risky level at $36.35.

Costco ( COST) ($111.50) fell below its 50-day SMA at $114.53 on Aug. 15 with the 200-day SMA at $106.96. My semiannual value level is $103.24 with a quarterly pivot at $113.74 and monthly risky level at $118.94.

Dollar General ($56.39) held its 50-day SMA at $53.78 on Tuesday then traded as high as $57.42 on the better than expected EPS. The 200-day SMA is $49.84 with a semiannual pivot at $56.97 and monthly risky level at $58.37.

Dollar Tree ( DLTR) ($54.17) missed EPS estimates by a penny earning 56 cents a share on Aug. 22. The stock traded to a reaction high at $54.92 then faded to its 50-day SMA at $52.88. My annual value level is $25.32 with a semiannual pivot at $52.56 and monthly risky level at $57.02.

Family Dollar ( FDO) ($70.29) beat EPS estimates by 2 cents earning $1.05 back on July 10. The stock set a multi-year high at $74.44 on Aug. 14 then faded to its 50-day SMA at $68.64. My monthly value level is $63.09 with a quarterly pivot at $70.03 and semiannual risky level at $73.03.

Ross Stores ( ROST) ($69.09) beat EPS estimates by 5 cents earning 98 cents a share on Aug. 22. The stock set a reaction high at $70.86 on Aug. 23. My annual value level is $54.55 with a weekly pivot at $68.56 and monthly risky level at $73.81.

Target ( TGT) ($63.55) beat EPS estimates by 22 cents earning $1.19 on Aug. 21 and the stock traded lower to $63.05 on Aug. 29. Target has been below its 200-day SMA at $66.56 since Aug. 21. My annual value level is $53.54 with an annual pivot at $65.45 and semiannual risky level at $72.47.

TJX ( TJX) ($53.87) beat EPS estimates by 3 cents earning 66 cents on Aug. 20. The stock set a reaction high at $54.66 on Aug. 26. My semiannual value level is $49.79 with an annual pivot at $52.67 and monthly risky level at $56.18.

Wal-Mart Stores ( WMT) ($72.91) missed EPS estimates by a penny earning $1.24 on Aug. 15. The stock has been below its 200-day SMA at $73.86 since Aug. 23. My semiannual value level is $61.55 with a semiannual risky level at $74.96.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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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