Value Investor Barry Rosenstein’s Cheap Stock Picks Include Aetna Inc (AET)

The fund moved heavily into Big Lots, Inc. (NYSE:BIG), increasing its holdings to a total of 3.8 million shares. With trailing and forward P/Es of 13 and 11, respectively, Big Lots is valued at a considerable discount relative to big-box discount stores such as Target and Wal-Mart; it’s also cheaper than dollar stores. In its most recent quarterly report (for the quarter ending in early May, the first of the company’s fiscal year), sales rose only slightly compared to the same period in the previous fiscal year. Big Lots attributed this to a decrease in same store sales in the U.S. market.

With sales growth driven by an increase in locations, then, Big Lots experienced a 21% decrease in earnings. It’s true that this particular fiscal quarter was a tough one for many retailers- a leaked Wal-Mart memo called it the worst start to a fiscal year ever, before the company only recovered enough to report 1% revenue growth- though clearly the retailer underperformed many of its peers. While one would think that closeout retail would benefit from a tough economic environment for many middle class and lower middle class Americans, the actual results have not been good and so even at its current earnings multiples Big Lots does not look too interesting.

As a result investors interested in discount retail might want to consider Wal-Mart or the dollar stores as higher-P/E alternatives which have delivered better financial performance recently. Agrium has also been struggling recently and this recent news is not good, but its earnings multiples are quite low as is and it might be worth waiting to see how the company actually handles developments in the fertilizer market. Health insurers generally seem interesting- although prospects for earnings growth seem slim- and so a review of industry players including Aetna Inc (NYSE:AET) may be appropriate.

Disclosure: I own no shares of any stocks mentioned in this article.