“If my job was to pick a group of 10 stocks in the Dow Jones that would outperform the average itself, I would probably not start by trying to pick the 10 best. Instead, I would try to pick the 10 or 15 worst performers and take them out of the sample, and work with the residual.” -Warren Buffett
Source:
-
"Track Record Is Everything" by Warren Buffett, Across the Board, October 1991. The Conference Board.
According to MergentOnline, FDO has increased the dividend every year for 36 years in a row. The dividend payout ratio of 29% is an indication that the stock could weather a major hit to earnings without much impact to the current dividend policy.
Looking to Value Line Investment Survey dated January 31, 2014, we find that the recommendation is for, “…would-be investors to look else-where.” The negative tone is supported by recently reported lower earnings and lower guidance by FDO management.
Value Line indicates that FDO trades at fair value around $60.90 for 2014 and is estimated to be at a fair value of $83.47 in the 2016 to 2018 period. Shares outstanding have declined –33% from 2003 to 2013. However, long-term debt has increased from zero to the current level of slightly above $500 million since 2003.
Applying Edson Gould’s Speed Resistance Lines, FDO has a conservative downside target of $52.93 and an extreme downside target of $25.10.
According to Dow Theory, FDO has the following downside targets:
| Downside Targets | |
| $55.07 | |
| $44.95 | |
| $34.83 | |
Falling below the $55.07 support line suggests that FDO could decline to $47 in the near term. Investors interested in FDO could break their investment into at least two purchases, the first being 60% of the intended amount now and the second purchase of 40% at either of the two indicated support levels at $44.95 or $34.83.