5 Big Retail Bets from Billionaire Ray Dalio

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Billionaire Ray Dalio founded Bridgewater Associates in 1973 from his apartment. After 28 years, Dalio stepped down as CEO and is now the co-CIO and “mentor.” One of the big feats for Bridgewater is that it manages only institutional money – around $120 billion. The other uniqueness of the firm is its culture, driven by utter transparency. After reviewing Bridgewater’s recent 13F filing – which reports publicly traded equity positions from the end of 3Q – we have taken notice of five retail stocks that the fund is invested in (check out Ray Dalio's top bets).

Wal-Mart (NYSE: WMT) is expected to see revenues up 5.5% in FY2014, mainly on the back of 9% growth internationally. We like Wal-Mart given its international presence and diverse product base. The retail giant is also expected to see strong square footage growth of 3.5% and same store growth of 2% in FY2013. Driving Wal-Mart should be the benefit from increased demand in merchandise improvements in domestic stores and greater expansion in international markets. Low-priced products and robust discretionary item offerings make Wal-Mart one of the top retail investments. Warren Buffett is Wal-Mart's top fund owner with over 46 million shares (see Warren Buffett's new picks).

Target (NYSE: TGT) is looking for 2% same store sales growth in FY2014, which is being driven by solid customer visitation. Increased store traffic is related to store remodeling and new fresh food offerings. One of the big growth initiatives for Target is expansion efforts into Canada, with store openings slated for Spring 2013, which are expected to add 4% in sales growth. Target also made the sale of its credit card portfolio, which should help boost its 2.4% dividend yield. From a valuation standpoint, Target trades below its top peers at 13x earnings, compared to Wal-Mart (14x) and Dollar General (16x).

The TJX Companies (NYSE: TJX) expects solid same store growth in FY2013 and FY2014, with costs expected to be cut $75 million in FY2013. One of the key drivers for TJX will be better than expected sales trends in Canada and Europe. T.J. Maxx has also been executing its conversion of A.J. Wright stores to T.J. Maxx and Marshalls, not to mention the planned opening of 150 net stores, and repurchasing of $1.3 billion in stock during FY2013. Billionaire Ken Griffin - found of Citadel Investment Group - was TJX's top fund owner with over 3 million shares last quarter (check out Ken Griffin's latest picks).

Dollar Tree (NASDAQ: DLTR) is a discount retailer that trades on the cheap end of the industry at only 16x earnings. Same store sales growth is expected to be 3% in FY2014 and 4% in FY2013, where sales should be driven higher on the addition of refrigerated and frozen foods. The discount retailer also plans to grow square footage by 7% through FY2014, thanks to growth in consumables. This should help further drive sales due to weak economic pressure, which will further lead to trade downs.

Macy's (NYSE: M) is another one of Dalio's retail picks, and a high-end one at that. Sales are expected to be up 2% in FY2014, being driven by solid growth and demand from its high-end customers. The affluent customer base of Macy's and Bloomingdale's has allowed the retailer to hold up relatively well - up close to 20% in 2012. It also appears that same store growth should be robust over the interim, expected to be up 3% in FY2013 and 4% in FY2014. Macy's also trades on the low end at 12x earnings when compared to other major peers, namely Saks (23x) and Nordstrom (16x).

In short, we see the depressed retail segment as presenting solid investment opportunities. Two of the top global retailers Wal-Mart and Target are part of Dalio and many other billionaires' portfolios, but TJX is a lesser known pick. Macy's and Dollar Tree should see solid growth thanks to their specialized customer bases.


This article is written by Marshall Hargrave and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure