Equity Research and Investment Analysis

From a valuation standpoint, we have to agree that Big Lots is attractive, and we always like to hear confidence from management on a conference call. We are a believer in the growth potential of discount retail, as the trend of consumers to spend money more carefully is not going away anytime soon.

We think that B.J.'s has a lot more appreciation potential than does Costco, and we always like a stock that is out of favor with the market, yet still performs quite well. In this case, we agree with Mr. Cramer that B.J.'s is the better buy.

The results also took a hit from a stronger dollar producing international same store sales slumping 12%, which was far worse than U.S. comparable sales that were also down 5%. Costco reported earnings of just 48 cents per share which missed consensus estimates by 5 cents. Revenue sagged by 5% in the quarter finishing with $15.8 billion of sales in the period.

Consumer spending has been pretty weak thus far in the recession, but one company that seems to be fairly immune is Walmart. Walmart is thriving in this trade-down economy, and they are even going as far as to raise the dividend 15 percent.

So, we all expected holiday shopping to be weak, but it was even worse than expected. Retail results for the month of December continue to be released and the results are pathetic, but the discounters continue to be the only stocks we could recommend in this sector.

BJ's (enter joke here) has continued to post extremely impressive sales gains in recent months, in part do to the economic downturn. What's more, the company has aggressively expanded its store presence coming into the down turn and sharholders are actually up so far this year!

The guidance out of Weight Watchers should not be dismissed, but we think a lot of the difficulties seen in the year ahead have already been priced in. The company has decently strong underlying value based on the current fundamentals and value investors with a longer time frame may benefit from an eventual rebound in Weight Watchers business. In the interim the stock yields a respectable 2.7% at the current price, and we believe the downside is likely fairly limited at this point.

General Parts Company (GPC), which is the parent company for Napa Auto Parts, reported earnings on Tuesday that exceeded analysts estimate for the fiscal fourth quarter 2009. Analysts expected the company to report EPS of $.51 on sales of $2.4 billion, but the actual results outpaced estimates on both counts with EPS of $.62 and revenue of $2.47 billion. The stock rose by more than 6% following the results, but according to our methodology value investors have missed the boat on this stock.

Shares of Papa John's International (PZZA) are surging more than 9 percent following Monday afternoon's announcement that next year's earnings per share will range from $1.70 to $1.90. Current analysts' estimates had the company pegged to deliver $1.74 per share, so this news is seen as a positive to investors.

McDonald's valuation looks very reasonable, even considering global growth may be finally slowing. The market has focused on top-line growth because of today's sales release, but we think a long term investor should primarily focus on earnings growth which remains quite attractive.

Wendy's still trades at a significant premium to earnings, and has been a much hotter stock than its competitors recently. We are in agreement with Cramer that the company is starting to turn a corner, but we cannot recommend buying these shares at the current price. The stock is getting the Cramer bounce of 5.5 percent today that often comes the day after Cramer covers a stock on his show. If the stock did have a pull back of 10-15 percent and continues to show improved profitability and growth, then we would likely become at least interested.

MCD is only down 2% over the last year, coming into the day, outpacing the S&P by more than 25%. By our methodology, McDonald's is priced just about where it should be based on the fundamentals of cash earnings, revenue, sales growth, ROE, and dividends.

If you believe that the dollar will be headed lower over the long term as the U.S. government continues to run the printing presses, then the emerging market growth strategy of Yum! Brands could make it more appealing to you. For us, with a multiple approaching 18x, we think YUM is too expensive compared to its competitors.

There is no way, at this early stage, that we can have any idea how any legislation might effect corporate earnings in the sector, but you can expect that there will be increased volatility because of the amount of interest that will be generated when news on this topic breaks. At this point, all we can say is be prepared for a bumpy ride in healthcare, and the professionals are increasingly placing there bets to the downside.

Consumers everywhere are pinching penny's in this difficult economic environment and McDonald's is one of the benefitiaries of this trend. We highlight in this post why MCD may be a great hedge against further deterioration of the economy.