Fiduciary Management, Inc recently released its Q3 2020 Investor Letter, a copy of which you can download here. The FMI All Cap Fund posted a return of 6.2% for the quarter, underperforming its benchmark, the Russell 3000 Index which returned 9.21% in the same quarter. You should check out Fiduciary Management’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.
In the Q3 2020 Investor Letter, Fiduciary Management highlighted a few stocks and Dollar Tree Inc. (NASDAQ:DLTR) is one of them. Dollar Tree Inc. (NASDAQ:DLTR) is a discount store company. In the last one year, Dollar Tree Inc. (NASDAQ:DLTR) stock gained 23.7% and on January 8th it had a closing price of $112.97. Here is what Fiduciary Management said:
“Description
Dollar Tree is a leading discount retailer in the United States and Canada, operating over 15,400 total stores, 7,652 (or 49%) of which are operated under the Dollar Tree banner. The other 7,827 stores are operated under the banner of Family Dollar, which was acquired in July 2015. The Dollar Tree banner accounts for around 52% of the combined company revenue and 78% of profits. The Family Dollar banner accounts for the remaining 48% of revenue and 22% of profits.
Good Business
• The Dollar Tree business model is unique within the retail landscape. The $1 price point and constantly changing inventory provide the customer with a differentiated, treasure hunt shopping experience. The ever-changing merchandise in the stores also provides management with the ability to control the company’s gross margin.
• The Family Dollar banner sells a limited number of necessary consumable products and other general merchandise items at highly attractive prices. The company’s scale, concentrated purchasing, and low-cost locations allows it to sell products at prices well below those of their competitors.
• Both business models are defensive and perform well in most economic environments. The consolidated company has had positive same store sales growth in each of the past fourteen years.
• The business generates attractive returns on tangible capital that exceed the company’s cost of capital.
• The customer profile, low average ticket, and types of products sold protect the business from online competition.
• Both Dollar Tree and Family Dollar possess scale advantages that make them difficult to replicate.
• The balance sheet is in good shape with ND/EBITDA of approximately 1.1 times.
• The business is easy to understand.
Valuation
• Dollar Tree is trading at a valuation discount to the S&P 500 even though it’s a better-than-average company.
• The stock trades for 15.8 times the next 12-month earnings per share (EPS) forecast, which is a standard deviation below its 5-year average of 17.9 times.
• The shares are also trading at 0.95 times enterprise value-to-sales, which is about one standard deviation below its 5-year average of 1.33 times.
Management
• Bob Sasser became Executive Chairman of the Board in September 2017. He was previously CEO from 2004 to September 2017. Prior to that he was Dollar Tree’s COO from 1999 to 2003.
• Mike Witynski joined the company in 2010 and became President and CEO in July 2020. He was previously COO from July 2015 until December 2019, and Enterprise President from December 2019 until July 2020.
Investment Thesis
Dollar Tree is a high-quality, defensive business that performs well in most economic environments. While the pandemic has negatively impacted customer traffic at the stores and has increased costs throughout the organization, the business is holding up reasonably well this year; same store sales and EPS are both expected to grow in 2020. We believe that over the next few years, the company will expand its store base and continue to grow its same store sales, and that margins will improve. When including stock buybacks, EPS is expected to grow at a double-digit compound annual rate. The company’s stock is attractively valued, trading at 15.8 times the next 12-months EPS estimate in a very expensive market.”
Copyright: defotoberg / 123RF Stock Photo
In December 2020, we published an article revealing that Dollar Tree Inc. (NASDAQ:DLTR) is one of the top 10 retail stocks to buy now.
In Q3 2020, the number of bullish hedge fund positions on Dollar Tree Inc. (NASDAQ:DLTR) stock decreased by about 17% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t believe in DLTR’s growth potential. Our calculations showed that Dollar Tree Inc. (NASDAQ:DLTR) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.
