My wife is looking to invest some money in her account, so I pulled out my watch list of stocks. I normally keep a list of stocks that meet my criteria as good, long-term investments handy for just such a time as this. I then down-select from that list based on 1)the relative price of the stock versus what I consider to be “fair value” based on future earnings potential and 2)how big a position I have in the stock already.
In looking through the list this time, two retailers looked like good options. These were Pier One, the ubiquitous chain of home decor items, and The Container Store, a relatively new chain of stores that sell containers to hold the knickknacks you pick up at Pier one but no longer want to have out taking up space on your end table.
I only had a few shares of Pier One in my son’s educational IRA account, so there was room for plenty more. It had fallen from about $20 where we had bought in to the low teens. This made an attractive entry point, although it makes you wonder if the chain has lost its luster and is no longer fashionable. (Note that I consider all of our accounts when deciding whether we are too heavily invested in any one position. There is no mine and yours when you become married.)
I had bought a fairly sizable position in The Container Store, but I was still building the position during pullbacks in price and it could stand to get a bit larger. It had also fallen back a bit since I had bought in, although not as badly as Pier One. The Container Store appears to have a lot of room for growth, but really doesn’t have quite enough history to know if they are going to grow into a retail behemoth or fail as a concept. There is something attractive about getting in early, however. Wouldn’t it have been great to get into Home Depot near the beginning when they only had stores on one or two states.
So what are the things about these two businesses that make them SmallIvy stocks? Well, they have shown a good, consistent earnings growth rate. I like stocks that are able to grow their earnings year after year. I find that I tend to buy into retail and restaurants quite a bit because they are really designed for growth. All they need to do for a period of time is open another store.
The second thing I like about them is they have a relatively high 3-5 year appreciation potential, as listed by the Value Line Investment Survey, the stock rating and screening publication I use. I look for stocks that are have the potential to grow a large amount over the next several years. If I can find stocks that have potential returns between 15 and 20% per year for the next several years, I tend to examine them more closely.
The third thing that I like to see is a steady increase in price. If I can find a stock that you could lay a ruler over and find an ever-increasing price curve, I’ll definitely take a second look. That means that they have been able to deliver consistently good results over a long period of time. A few stocks do that for decades, and those are the truly great ones. In this case The Container Store doesn’t have a long enough history to say yet, and Pier One has seen a few ups and downs. Of course, most stocks saw downs during 2008-2009 since people stopped spending since they could no longer use their homes as a piggy bank.
In the end I did what any smart investor would do – I left it up to my wife to decide. She decided to go with Pier One. We’ll also put some of the money in an ETF – probably the Vanguard Growth Fund ETF VUG. No reason to put all of our eggs in one basket, particularly when it’s my wife’s money. Luckily I’ve done fairly well in the past with her accounts with picks like Sealed Air (bubble wrap) and Equifax (bank transaction services). Hopefully this pick will work out as well.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.