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Friday File: Buying Risky Retail, Checking up on REITs

Updates on the Real Money Portfolio, plus some musings on dividend stocks

By Travis Johnson, Stock Gumshoe, November 22, 2019

Not a lot of buying and selling going on this week, as the market continues to seem to be reacting only to the “thumbs up” or “thumbs down” sentiment over a possible Chinese trade deal, but I did find one stock to buy… and caught up on a few others that have been catching my eye in the last week or so, mostly in REIT world.

So let’s start with our transaction, shall we?

Ulta Beauty (ULTA) — After keeping an eye on this stock for a while after I covered it in some detail in mid-October, I decided today, with the stock down another 7-8% since then, to take a position going into earnings (which should be reported in a couple weeks, on December 5). The stock took another small dip this week because of the Kylie Jenner/Coty deal (Ulta sells a lot of stuff from both brands, so I don’t know why investors would care that they’re combining), and because they had a promotion last weekend that reportedly fell a bit flat. I’m buying about half of the position I’d like to take right now, mostly just because I don’t want to make a specific bet on investor reaction to the next quarter — hopefully I’ll have a chance to fill out the position a bit following their next report.

The reason for some caution is that this is a big inflection time for Ulta, the stock could go pretty sharply either way in the next few weeks as they report what is seasonally always their weakest quarter but, more importantly, give an update on the first part of the holiday season and what they expect in that quarter (the earnings timing is odd because they have an odd fiscal year, their fourth quarter begins in early November and ends in early February, to keep all that holiday spending and marketing in the same report).

The bottom line? I think spending on and obsession with beauty is still growing, and Ulta is still the most accomplished and established national retailer, with decent same store sales growth, a good online presence, and a continuing store opening program that is keeping revenue growth pretty high… and it’s trading for about the same multiple as Target or Walmart, despite the fact that they’re likely to grow at least twice as fast.

It’s not a “no-brainer,” to ...

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