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Wedbush Upgrades LL, Good Time to Buy?

Let's talk about Lumber Liquidators (LL).

It had a big day Wednesday. You will not be chasing it. Wedbush upgraded the stock, but let me put in perspective: The 52-week high is $119 and the 52-week low is $52, it closed Wednesday at $59.28. (A lot of potential room to the upside.)

I know the company very well, having first recommended it to subscribers in December of 2007. Last year (July 23) I featured it on my trading service at $85. We took profits in September at $109. Recently, I have to admit I was real tempted, it was around $75-$77. The stock was looking pretty interesting, it was percolating, there were takeover rumors and I waited and two days later… it crashed. Well, now I think it’s over.

That crash, I think, was a set-up by deep-pocketed people that knew bad news was coming. That being said, Wall Street still hates this company. 24% of the float is short, but I think the stock is oversold. I think the company will take market share, and that will justify higher share price. Technically, I see a breakout comes with a close north of $60, and while it won't happen in a straight shot, it’s not unreasonable to think that this could be an $80 stock. Set your stop at $52-$53.

Now let’s talk about Advanced Auto Parts (AAP).

This is actually a reiteration from earlier last month, but it’s a name I think is great. It’s been a great recession investment, based on the need for people to hold onto their cars longer than in the past. Here’s something really interesting, even with stronger auto sales over the past few years, there are still more than 250 million cars in operation that are more than 10 years old. That’s a big market for these guys. The company's merger with General Parts gives it greater breadth in the commercial area and the combined companies are a formidable force.

In addition to strong share in both areas, synergies should lead to annual savings of $160 million+ in the next couple years. In the meantime, it has put some pressure on margins, but I like this long term. Last quarter, same-store sales were up 2.4% from a year earlier, where they declined 3.2%.  

I think margins will begin to improve to the point of 50% gross margin and 10% for comparable operating margin. In the meantime, earnings estimates are edging higher to $8.48 for next fiscal year from $8.33. It’s changing hands at PEG ratio 0.97 and just one-times book. Stock is coming off solid support from a technical point of view. Technical resistance, it got through there, $136. Some bumps in the road, but a relatively clear shot to $150 a share.

DISCLOSURES

Lumber Liquidators (LL)

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CHARLES N N Y N
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Advanced Auto Parts (AAP)

Owns

Family Owns

Firm Owns

Investment
Banking

CHARLES N N Y N
DAVID N N N N
MATT N N N N
HITHA N N N N
TRACY N N N N

 

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