You saw the headlines. You know your stock price made a big move one way or the other, but what does that portend for its future? If there's not a fundamental basis for a stock's run higher, or its trip to the cellar was fueled by transient, panic-driven selling, those gains and losses might not hold -- and therein lies the potential for investors to profit!
By pairing the latest news with the collective wisdom of our 180,000-strong Motley Fool CAPS investing community, we might be able to discover whether your stock's latest exploits are a short-term hiccup -- or the start of a much bigger trend.
6 feet under?
A few years ago, Wal-Mart tried to shake up its brand by becoming a fashion plate, stocking higher-margin designer clothes. It was an utter failure. You didn't shop at the leading discount mass merchandiser to look trendy, you went there for a bargain.
Big Lots (NYSE: BIG ) is a deep discounter that should have remembered that lesson, because shoppers don't hit up the closeout merchandising specialist looking to pay prices they could get at Wally World or Target; they're looking for a deal. But Big Lots has been stocking up on mattresses and upholstered items, products that carry big margins for the retailer, but that don't translate into the steals consumers are seeking.
Second-quarter revenues rose 4%, but profits tumbled 38% from the year-ago period. Part of the problem is the shift in focus it made as it added consumables to its lineup, following a trend other discounters like Dollar Tree (Nasdaq: DLTR ) and Family Dollar implemented in a bid to attract more foot traffic. Consumables make up 30% of Big Lots' revenues yet they're still not bringing in customers to the store like it wants. The retailer's solution, though, is to add even more freezers and refrigerators to its stores.
With further declines in same-store sales expected for the remainder of the year and full-year guidance being cut, Big Lots' stock isn't such a big deal these days and it's hard to recommend the stock to investors. Although it trades at less than 10 times earnings estimates, sometimes cheap stocks are cheap for a reason. Tell me in the comments section below whether you think the reduced outlook for the deep discounter means the stock should be deep-sixed, too.
Earlier this year I noted that private equity firm Carson Capital had been buying up large swaths of nursing home operator Sunrise Senior Living (NYSE: SRZ ) , fueling speculation there was a buyout in the works. While Carson continued to make purchases throughout the spring, the summer doldrums apparently quieted down its ardor. Or maybe it felt it had enough of a stake in the senior living center in the event someone did come along and make an offer. Which they did.
Health Care REIT (NYSE: HCN ) agreed to buy Sunrise for $1 billion, or about $14.50 a share, a 62% premium to the nursing home's closing price before the deal was announced. With most of Carson's purchases made around $6 or $7 a share, the private equity firm is making out even better.
Sunrise owns 20 senior housing communities in North America, and it has an interest in joint ventures that own an additional 105 communities. Yet it's had to sell off many properties to get its financial house in order and Marriott was looking to extricate itself from guaranteeing the obligations related to 10 of 14 communities Sunrise leased from Senior Housing Properties Trust (NYSE: SNH ) .
The assisted living specialist had stabilized occupancy rates at its properties as they came in at 88.1% in the second quarter, unchanged from the first, but 90 basis points higher than a year ago, while average daily revenue rose 2%.
The deal makes Health Care REIT the world's largest owner of senior housing communities, but let me know in the comments box below if you think that makes it a worthwhile investment.
Stop, look, listen
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