The keys to this market

Two stocks serve as prime examples of exactly what retail growth investors want.

By Jim Cramer Oct 24, 2013 10:01AM

TheStreet.com logoHouse keys © Comstock Select, CorbisWhat does it take to please investors when it comes to retail?


You have Home Depot (HD) reporting amazing numbers and people yawn. Costco (COST) puts up 5 percent comparable-store sales, so much better than others, and it goes down and then back up and then ends where it started.


Shares of Target (TGT) and Nordstrom (JWN), two good operators, are only up a respective 8 percent and 10 percent for the year, well behind the market. Macy's (M), probably the best of a struggling lot, has managed to gain 14 percent. Don't even ask about J.C. Penney (JCP).

 

Can't any retailer please the market?

 

You bet they can -- two of them can -- and they just reported in the last 24 hours: Lumber Liquidators (LL) and Tractor Supply (TSCO). They have exactly what the retail growth investor wants. First, they've got rising comps -- up 17 percent for Lumber Liquidators and 7 percent for Tractor Supply, and the latter vs. a 2.9 percent rise last year. Each also has lots of new stores being put up, steadily improving gross margins, proprietary products and a clear multiyear runway.

 

Oh, and perhaps most important, neither store chain can be Amazon's (AMZN). In fact, the products, for the most part, don't lend themselves to mail order, so it's not as if Amazon will seize the opportunity once it sees it. That's never going to happen with flooring or tractors or grain or feed.

 

I often joke with my friend and colleague David Faber that these two stocks, along with a third – Ulta Salon (ULTA) -- are the keys to this market. He used to marvel that I would make such a "bold" statement, until he realized I was using them as metaphors for the stocks that growth investors are feasting off of because they deliver the metrics that please the most portfolio managers.

 

Think about it. Here's Home Depot adding one store this year, in Williston, N.D., the heart of the oil-bursting Bakken. Home Depot is full-up. Lumber Liquidators? It has 307 stores, up from 284 a year ago, for 8 percent growth. There's so much room across the country for stores that it is truly a tremendous regional-going-national operator. Talk about runway: The company only has 17 stores in California and 18 in Texas. It can put up stores for years. Tractor Supply is more broad, as it should be, since it's got $9 billion in market capitalization vs. only $3 billion for Lumber Liquidators. With 1,200 Tractor Supply stores, this company is in a lot of places, yet it is accelerating its store openings for the year.

 

Now, these stores are niche. Lumber Liquidators is a less expensive place to buy flooring, which had been a very mom-and-pop business. The company's got low sourcing costs, and it's gotten a lot of attention through clever advertising. It did a land office business after Hurricane Sandy, but it has pretty much assured you that it can maintain the momentum, and management even mentioned that October's been gangbusters -- another tease the growth guys want. Lumber Liquidators did not skip a beat when federal authorities, in a very visible way, requested more information about their lumber sourcing. The company mentioned it in passing on the call and dismissed it, as have the buyers of the stock. It never came up in the questioning.

 

These stores may not seem high-quality enough to you. Lumber Liquidators has drawn the attention of Herb Greenberg as being schlocky. My Tractor Supply seems hick, so to speak, in its assemblage of merchandise. But farmers aren't looking for the Abercrombie & Fitch (ANF) of farm tools, animal feed or pet supplies.

 

Regardless, for a growth investor, these are tailor-made companies, almost made up in their perfection for what mutual funds want. That's why, even as Tractor Supply sells at 30x earnings and Lumber Liquidators sports a 40x multiple, these buyers don't blanch. That's why, in the end, they really are the key to this market: They are the biotech of retail, the junior oils of chains. Both, like it or not, aren't done with their growth -- especially for Lumber Liquidators, which has only one-third as many stores as Tractor Supply and sports a much more universal concept.

 

Their stocks aren't done going higher, either.

 

Jim Cramer's headshot


At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long COST.





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193Comments
Oct 24, 2013 10:52AM
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I am getting the idea this closure by the FEDS will be great cover for avoiding the reality of all the bad numbers most of us know exist.   These DC cats create a cover controversy much like an animal covers its scent. They now have 6 months of excuses to offer cover for all the dismal economic numbers. If one cared to deduce the ineffectiveness of our ensuing health care program you would only need to look at the failed Soviet Union and understand how these cats skate around the issues.   For those who care to open their eyes we are now them.  A complicit media and an unaccountable bureaucracy.  Not one ounce of accountability by either. Aint we got fun?
Oct 24, 2013 11:02AM
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Let's see..... Everything is great ........ you can go online and compare policies... pick the one best for you and save lots of money. Just like Google....... Woops... No one is more angry about these problems than me.

 

So why would we not wonder about

 

Let's see..... The market is fine... Bernanke has control of the situation... Summer of recovery fixed it all up... Housing rebounding.......... Woops.

 

Oct 24, 2013 12:26PM
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In response to Brent the Pensioner 2014.

 

It is a matter of video record that the Bush (dubya) administration began warning about the bubble potential fostered by Freddy and Fanny beginning in 2001 and  continuing thru 2007.

 

It is also a matter of video record that Barney Frank and Senator Schumer praised and promoted the procedures that the administration found disturbing.  Frank at the time chaired the House Committee that could possibly have helped avoid the disaster. 

 

Oct 24, 2013 11:22AM
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FRAUD STREET at it again...yesterday dow down on earnings, today up on earnings...its all a lie!

 

Oh and btw, did they fire Charley Blaine since you can no longer comment on the main DOW page?

 

Oh and Brentthepensioner...yeah there is such peace anymore with DAILY school shootings...what a dork!

Oct 24, 2013 12:22PM
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"The Federal Reserve on Thursday proposed that big banks keep enough cash, government bonds and other high-quality assets on hand to survive during a severe downturn on par with the 2008 financial crisis. The proposal subjects U.S. banks for the first time to so-called "liquidity" requirements. Liquidity is the ability to access cash quickly. The largest banks — those with more than $250 billion in assets — would be required to hold enough cash and securities to fund their operations for 30 days during a time of market stress. Smaller banks — those with more than $50 billion and less than $250 billion — would have to keep enough to cover 21 days. Fed officials said the rules are stronger than new international standards for banks."


They wouldn't suggest it unless their data has already pinpointed the collapse date and severity of the crisis. Are you THAT STUPID as to continue "guessing" or smart enough to take profits now and wait out inevitability? YOU ARE WELCOME- to those who picked up a copy of Fiat Money Inflation in France by Andrew Dickson White, read it and now aware of our circumstance. 

Oct 24, 2013 1:07PM
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As we get nearer to the 2014 election season you will see more and more of these liberal Democrats abandoning their leader trying to find some sort of middle ground in order to be reelected. Just like a bunch of rats  jumping off a sinking ship
Oct 24, 2013 10:17AM
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AREN'T Lumber Liquidators and Tractor Supply actually penny stock status companies that in essence are bouncing on the floor? 
Oct 24, 2013 11:57AM
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While I like the idea of finding companies that are immune to the Amazon factor, I don't think I'll take the advice of this entertainer.  I will give him props for an interesting premise for an article though.
Brent
Seriously, if you actually believe that for most people the economy is great than you are blind or a fool.  I would have voted for Obama over Romney (although I would have voted for Mccain over Obama) but you cannot honestly think he has done a good job.  Alternatively repubs on here cannot be happy with the bills congress has passed (or lack of them) over the same time period.  
These daily attacks do nothing to advance causes, NOTHING!!!!!   Offer actual solutions or STFU, not just Brent but many others.  Even better, offer these solutions to your elected officials, with signatures of as many Americans you can find.
Oct 24, 2013 2:51PM
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What did the middle aged middle class liberal woman say when she first saw the cost of her new ACA insurance plan?

 

O bummer

Oct 24, 2013 11:04AM
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"Chinese manufacturing improvement buoys markets" -- this MSN headline sure makes a mockery  of JIM CRAMER'S article yesterday, which seems now to have been sheer scare mongering, and aimed at manipulating the market!!!
Oct 24, 2013 10:40AM
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You would have to pick Bernanke's pocket to get the keys to this market you big dummy.
Oct 24, 2013 1:03PM
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No Fed chair confirmation until the Audit the Fed bill is passed by the Senate.

---- Tell your Senators --- otherwise you are complicit with the ongoing Federal Reserve malfeasance.

Oct 24, 2013 10:43AM
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Had to really dig deep in the bag to pull these two out.  Will they gain any traction?  Like love and bullits Jim you never see the one that gets you.  But you may or may not have something here Jim.  Hopefully you didn't just have lunch with these cats and promise them some juice like you have been known to.  Oh well not my place to bad mouth the host.  JMHO

Oct 24, 2013 2:05PM
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Wow.......... It's been a while since I had a post deleted but they got my last one.
Oct 24, 2013 1:06PM
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I just wish they would report THE news and let us decide if it is GOOD or BAD..... quit spinning it.

Oct 24, 2013 4:17PM
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Did you buy that bridge off my website Little Beav?
Oct 24, 2013 4:50PM
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The only economy to pay attention to is that which is around you IN CASH AND OFF BOOKS.  Screw the rest of it.  It does nothing except empower progressive programs through tax collections.
Oct 24, 2013 11:45AM
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Hey Beav......... Why don't you do some Ra Ra Cheerleading for the Democrats that are for delaying ObamaCare? At least then you will be cheering for something that makes sense.
Oct 24, 2013 2:54PM
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So, dlh has become our resident "Porn Husker" now?
Oct 24, 2013 2:40PM
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If you like ObamaCare I have an ObamaBridge to sell you.

 

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