Will Retail Stocks Be Harmed By A Border Tax?

 

Ten of the fifteen 2012-2016 Goodfellow LLC model portfolios

outperformed the market averages by margins of 50-100% and more!

 

Answer:

If a border tax comes to fruition, it could harm Dollar Tree’s import business, and the import businesses of almost all American retailers.

At this point, the nominee for U.S. Trade Representative, Robert Lighthizer, has not yet been confirmed. While it is true that the House Ways & Mean Committee has been sifting through ideas on taxation and trade for a long time, I would think it unlikely that anything solid could proceed quickly, with so many new players in Washington D.C. each needing to get the lay of the land and prioritize their department’s goals.

There are other pending legislative and policy situations that could HELP America’s retailers, including repeal of various parts of the Wall Street Reform and Consumer Protection Act (a.ka. Dodd-Frank), lower income tax rates, changes in the healthcare system, and American business’ recently newfound willingness to expand business domestically.

As always, I begin my analysis with Wall Street’s consensus earnings estimates. The more likely it is that any of these policy situations will take place, the more that analysts will figure their effects into consensus estimates.

Right now, Dollar Tree is expected to grow earnings per share (EPS) by 16.6% in fiscal 2018 (January year-end). That’s an attractive earnings growth rate. The estimate has barely budged since December 31, moving from $4.52 to $4.49 per share.

In comparison, here are the expected fiscal 2018 EPS growth rates (January year-end) at some other famous discount retailers:

Big Lots (BIG) ……………. 9.9%

Target (TGT) ……………… 7.9%

Dollar General (DG) …. 6.6%

Wal-Mart (WMT) ……….. 0.2%

 

While you and I may be weighing DLTR vs. PulteGroup (PHM) vs. Vertex (VRTX), think about this the way that institutional investors work. Those are the folks who buy and sell enough shares to move markets. They don’t weigh DLTR against other sectors’ stocks. They weigh DLTR against other stocks in the same industry. And in that examination, we see that DLTR has a far more attractive EPS growth rate than Wal-Mart, etc.

 

Both Goodfellow LLC 2017 model portfolios are

also outperforming the S&P 500 and the DJIA

year-to-date through February 24, 2017.

 

Professional investors usually need to have a portfolio representation within each stock market sector. They’re not going to omit retail stocks, even if a new border tax is implemented. Instead, they might pare back on their total holdings, concentrating on just a few cream-of-the-crop retailers. It is my hope, in choosing DLTR, that I am choosing stocks that will attract the attention of institutional investors, who can then buy enough shares to push their prices upward.

I think we’re fairly safe with DLTR.

 

Crista Huff

President

Goodfellow LLC

 

* * * * *

Crista Huff is a stock market expert, and Chief Analyst at Cabot Undervalued Stocks Advisor. She is also a fiscally conservative political activist and a pro-American business advocate. Send questions and comments to research@goodfellowllc.com.

 

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