3 Hidden Gem Specialty Retail Stocks You Need to Know (DKS, HIBB, HZO)

3 Hidden Gem Specialty Retail Stocks You Need to Know

8/25/2021

KEY POINTS

The S&P 500 and the NASDAQ hit records once again as the trading day ends in the green.
Dick's Sporting Goods (DKS) beat its pre-pandemic revenue by 45%, and the stock soars thanks to investors' excitement.
The pandemic has helped cash-rich specialty retailers (HIBB and HZO) get stronger with new online and offline experiences.

OVERALL MARKET

The S&P 500 and the NASDAQ hit records once again as the trading day ends in the green.

The market indices ended the day in the green once again!

While today's gains by the indices were relatively small, they still nudged them into another record day for both the S&P and the NASDAQ.

Despite the slower growth rate, the number of COVID-19 cases continues to rise. The slower growth rate is bolstering investors' confidence that we are still on a path to reopening. Also, the market is hitting highs partially due to the possible new multi-trillion-dollar economic bill the Democrats are working on.

Overall, the market is nudging forward slowly.

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WHAT'S UP?

Dick's Sporting Goods (DKS) beat its pre-pandemic revenue by 45%, and the stock soars thanks to investors' excitement.

Today I was browsing the winner’s list of stocks, and a 4-greener stock caught my eye. Dick’s Sporting Goods (DKS) was up by over 13%! The company released its quarterly earnings report today. It beat last year's quarterly revenue by 20% and even beat pre-pandemic 2019 sales by 45%. It emerged from the retail woes of the pandemic stronger than ever! On top of this, Dicks is sharing the rewards with shareholders. The company already pays dividends to its investors, and the management raised it by 21%. For the cherry on top, shareholders were gifted a special one-off dividend of $5.50 per share.

Let’s take a look at Dick’s Stock Card to learn more. The company is doing great in terms of sales growth, profitability and generates almost $2 billion in free cash flow. The one part contradictory to such growth is the Price-to-sales ratio of nearly 1.0, which you can find under the Valuation Multiples section.

This is again a similar story to Best Buy (BBY) that we discussed yesterday. Investors assume brick-and-mortar retail is dead. However, retailers with cash and a strong brand have managed to prove them wrong. They also, typically, pay a dividend based on their solid balance sheet and free cash flow. For DKS, you can see it score well across all 11 dividend criteria under the Our Strategy section on Stock Card.

SPECIALTY RETAIL SCREENER

Pandemic has helped cash-rich specialty retailers (HIBB and HZO) get stronger with an online and offline experience.

The upward trend and good performance by Target (TGT), Best Buy (BBY), and Dick's Sporting Goods (DKS) got me thinking, what other specialty retailers are out there?

I started a new Screen on Stock Card's Screener tool, added the "Specialty Retail" collection in the Screener's search bar, and picked a few specific filters:

Small-Cap, Mid- Cap, and Large-Cap
Strong cash availability,
Good sales growth.

The result was 18 stocks worth considering. You can click here to get the list of Strong Specialty Retail stocks.

Let’s take a quick look at two of the search results from this Screener:

Hibbett Inc (HIBB) is another sports and outdoor equipment company with around a $1 billion in market cap, much like Dick’s. It has over a thousand stores spread across 32 states. The positive numbers from Dick’s earning’s report likely warmed up investors to the possibility of similar success for Hibbett, which will release its own quarterly report on the 27th. The company's management moved quickly when lockdowns began, and the company adopted many effective online means of retaining sales, like same-day home delivery, buying online and picking up in-store, and even a mobile app where customers could browse and purchase. Its Stock Card has solid green ratings for sales growth, profitability, and cash availability. You would have made bigger returns in the past three years by investing in Hibbett Inc than the S&P 500!

One more hidden gem that I found on our list is MarineMax Inc (HZO). This stock is another 4-greener like Dick’s. I had never heard of MarineMax before. MarineMax is a specialty retailer that deals with recreational boats, old and new. It also sells engines and other parts. MarineMax is the largest recreational boat retailer in the world! To add to its revenue streams, the company also handles plenty of boat insurance and chartering and brokering yachts, which gives its revenue some optionality. According to the Stock Card, the shares are undervalued, coming in at $50 despite great returns on investment, sales growth, profitability, and free cash flow. In its last earnings report, management raised the future guidance for the year, so I have difficulty understanding why the Stock Card shows such poor investor sentiment!

Specialty retailers like Dicks, Hibbett, and MarineMax benefit from being leaders in their niches with forward-thinking management. The past year and a half have given these cash-rich companies a chance to transition to eCommerce and still create an excellent in-store experience. The pandemic has worked wonders for them, especially retailers, and we now see them harvesting the benefits.

You may want to have some of these solid retailers in your portfolio, especially if you look for stability and cash from dividends that most of them pay.

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