I'll never forget seeing my first office supply superstore while
in college. While searching frantically for a typewriter ribbon on
the eve of a critical paper being due, my roommate advised that a
new office supply store had recently opened up just miles from our
Quickly heading there, I was shocked at the size of the store
and variety of office supplies available. I was able to purchase
the typewriter ribbon a great price but thought to myself, "There's
no way this conceptwill last, these guys will be out of business
soon." I reasoned that themarket for office supplies could not
possibly be large enough to support theoverhead and infrastructure
of that giant store.
Boy, was I wrong.
This company has expanded to a global scale with nearly 2,300
locations and $25 billion in annualrevenue . Not only did this
visionary company nail the rising demand for corporate office
supplies, but it also was perfectly positioned to benefit from the
boom in home-based businesses across the globe.
But right now, the company is struggling. E-commerce,
highunemployment and tight business credit has forced thestock down
more than 15% in 2012. I think this sell off has opened up a great
opportunity for investors to snatch upshares on the cheap. It looks
like I am in good company with this opinion, ashedge fund kingpin
Ray Dalio's Bridgewater Associates holds more than $22 million
worth of shares and just ramped up his holdings by nearly 220,000
in the third quarter of 2012. (You can see
my recent article
on Ray Dalio here.) Time has proven he is a good guy to have
on your side.
If you haven't guessed it already, I am talking about office
The company has adebt-to-equity ratio of only 27% and itscash
flow from operations payout is 33%.
When compared to its electronic big box competitor
Best Buy (NYSE
with a debt-to-equity-ratio of 57% and the fact it has paid out in
excess of its cash flow during the past 12 months indicates
Staples' resilience in a difficult market.
Staples reported third-quarter 2012earnings of 46 cents a share,
beating theconsensus estimate by one cent, but internal headwinds
There was a 2% decline in total sales of more than $6.3 million
and profits decreased nearly 4%, whilegross margin fell by one-half
of a percent to 27.6%.
Staples is predicting flat revenue growth for itsfiscal year
2013. While things may seem gloomy, the company is fighting back by
slashing store sizes and adding new products to its mix to increase
These cost-cutting and revenue-enhancing measures combined with
an improvingeconomy could likely lift shares higher.
A dividend-paying dynamo
What I like most about Staples right now is the company is a
dividend-paying dynamo. Its stock presently yields 4% and has
increased itsdividend 9% during the past five years. If you are a
retirementstocks aficionado like my colleague Carla Pasternak, the
, then Staples is definitely worth a look.
Carla likes to find reliable stocks that regularly increase
dividends. She calls these
Retirement Savings Stocks
. Whether you are currently retired, about to retire or just
starting to build a nest egg, then I think the best time to buy
Retirement Savings Stocks
Technically, there is substantial support in the $11 a share
range with a clear triple bottom on the daily chart. Although share
price is below the 200-day simplemoving average , eliminating
Staples from a potential value buy zone candidate and entering now
in the $11 a share range with stops right below $10 makes sense
assupport level play.
Risks to Consider:
Although I expect the economy to improve and lift stocks like
Staples, there is potential that improvement will not take place as
rapidly as expected. In addition, the verdict is still out on the
success of Staple's cost-cutting measures and product additions.
Always use stops and position size wisely when investing.
Action to Take -->
I like Staples right now as a long-term hold, but with tight
stops. If stopped out, I would then use the $11 a share level as a
breakout line to enter long again on a daily close above this
level. The strategy is to enter now, with stops right below $10. My
target price is $15 a share within 12 months.