An Unlikely Momentum Play

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

The Market bounced back strongly last week with the Dow Jones up 3.72%, the S&P 500 rising 3.26% and the NASDAQ recovering 2.61%. The MCSI Emerging Markets Index had an exceptional week, soaring 6.21%.

Alaska Air (ALK) dipped below its 50-day moving average and moved to a HOLD.

This week’s Bull Market Alert recommendation is Big Lots Inc. (BIG), a discount merchandiser specializing in selling closeout merchandise at its more than 1,400 retail stores in 48 states. The chain offers brand-name products from 3,000 manufacturers of furniture, seasonal goods, consumables and even food.

Truth be told, Big Lots was never an impressive player in the retail space.

Yet here’s why that is changing and why I expect Big Lots to continue its recent strong run.

First, the company is undergoing a turnaround with a new management team committed to driving high earnings growth. And its efforts are already paying off.

The company’s Aug. 28 quarterly earnings report beat estimates on both revenue ($1.21 billion vs. estimates of $1.20 billion) and earnings (40 cents per share versus 34 cents per share).

Management also raised earnings guidance from $2.87 per share to a range of $2.90 to $3.00. Earnings are forecast to rise 20% in fiscal year 2016 and 19% the year after.

Second, the stock has both momentum and relative strength. Big Lots is actually up 6.8% over the past month — the toughest stretch of market performance in recent memory. It is also one of the few stocks around which is trading above the level it was before the Aug. 24 sell-off.

Exclusive  The January Effect Hangover: Our Take

Third, Big Lots looks cheap, trading at a lower price-to-earnings (P/E) multiple versus its peer group, despite its faster earnings growth prospects. No wonder Citi put a $58 target price on the stock — 16% upside from Friday’s closing price.

So buy Big Lots Inc. (BIG) at market today, and place your stop at $44.00.

As the stock is overbought short term, I am holding off on recommending options this week.

Portfolio Update

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA) closed the week flat. Oppenheimer analyst Andrew Burkly highlighted three important trends his firm is listing as strong plays — one being “specialty retail,” of which ULTA is an example. Burkly cited strong consumer spending and consumption, driven by lower commodity and energy prices, as well as the seasonally strong fourth quarter, as a driver for higher ULTA prices. ULTA remains a BUY.

Alaska Air (ALK) fell 4.21% last week. Helane Becker of Cowen & Company noted that many airlines have issued higher earnings guidance as of late, and 2015 will end as “a record year for the airlines.” She cited a strong fourth quarter, supercharged by holiday travel, as pushing airline revenues higher. ALK will report earnings on Oct. 22, before markets open. ALK dipped below its 50-day moving average (MA) to become a HOLD.

Ultra Nasdaq Biotechnology ProShares (BIB) lost 4.42% over its opening week in the portfolio. Despite its weak start, the technicals point to a bright future for BIB. BIB has been consolidating in sideways trading over the last two weeks along a recent support level at the $53.50 mark. The exchange-traded fund (ETF) is also oversold, according to the slow stochastics indicator, suggesting that it is due for a strong bounce. BIB is a BUY.

Exclusive  Bidding Farewell to a Mettle-Building Site

NEW FEATURE — Receive your alerts via text! You now can receive a text message on your cell phone to inform you whenever a trading alert is sent. To add this free new benefit to your service, please send an email to with the following information and mention in the email that you want your cell phone added to your account:

  • Your Name
  • Your Zip Code
  • Your Email Address
  • Your Cell Phone number

Please note that we can only deliver text messages to cell phones with U.S. or Canadian numbers. Standard text messaging rates from your provider apply.

Nicholas Vardy


share on:

Like This Article?
Now Get Our FREE Special Report:
Alternative Investing: Investing in Timber

Stock Investor editor Paul Dykewicz reveals why investing in timber may be one of the best long-term portfolio strategies you'll find today.

Get Access to the Report, 100% FREE

share on:


Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader

Used by financial advisors and individual investors all over the world, is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor