Wednesday, December 19, 2012

A BIG Round Trip

The last few ideas I've written about have worked out reasonably well. Not wanting to risk looking like a hero, I thought it would be a good idea to write about an idea that hasn't worked too well. So I'll write about a " round trip", when you buy a stock and ride it all the way up, then all the way back down again. I wrote here about the discount retailer Big Lots (BIG) in June of 2011. After taking a position in 2011 @ $32, the stock promptly ran right up to $46, the bottom of my fair value range for BIG. Due to lack of brilliance on my part, I didn't sell, hoping for an even better price or maybe a buy-out. Then Q2 of 2012 rolled around and company reported poor earnings and the market ran for the exits.  It appears the inventory mix combined with really weak consumer confidence, in the first half of the year was way off and sales really suffered. Then to top it off, allegations ( and FBI investigations ) have surfaced that the CEO sold $10 million in stock just prior to the lousy Q2 earning report, while in possession of material inside information. That's a big no-no, as that sale was not part of his normal pre-programmed stock sales. The CEO has also announced his plan to retire.....hmmmm... That action, has hurt his otherwise good credibility and makes you wonder if he is looking out for shareholders or just himself.

So with BIG sitting in the $28-$30 range, I'll sit still for a few more quarters and monitor the situation. BIG still has good potential, particularily as the economy improves, and would be a nice fit for a private equity firm to take private. I'd tender for $55/share.

Chart forBig Lots Inc. (BIG)

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