Family Dollar Stores, Inc. (NYSE:FDO) and many of its discount cousins, including Dollar General Corp. (NYSE:DG) and Dollar Tree, Inc. (NASDAQ:DLTR), should be well positioned via increased product offerings and remodeled stores. Family Dollar has been on an aggressive remodeling spree of late. This should help keep customers coming back to the discount retailer even after unemployment decreases and the economy rebounds. Family Dollar plans on renovating 850 stores in fiscal 2013.
However, worth noting is that margins could be compressed over the interim due to the shift toward the lower margin consumable products. Yet, as far as valuation goes, Family Dollar looks to be well positioned, with a P/S ratio of approximately 0.7 times compared to Dollar General Corp. (NYSE:DG)’s 1.0 times and Dollar Tree, Inc. (NASDAQ:DLTR)’s 1.5 times.
M&A
However, one of Paulson’s big sell-offs was NYSE Euronext (NYSE:NYX), which was 4.2% of Paulson’s portfolio at the end of 2012. This stock was likely a merger-arb play for Paulson. At the end of 2012, IntercontinentalExchange Inc (NYSE:ICE) agreed to acquire NYSE for approximately $8.5 billion to $9.0 billion.
NYSE Euronext (NYSE:NYX) operates six cash-equities exchanges and six derivatives exchanges in half a dozen countries. While the futures and commodities exchanges seem to be doing well, the cash-equity exchanges have been under pressure due to a tough economic environment. Thus, the acquisition by IntercontinentalExchange Inc (NYSE:ICE) is a big positive for NYSE.
Even if the premium for the merger-arb upside is already played out, I would still consider the joint-firm a buy if the deal materializes. The combined companies would be one of the leading exchanges in equities, commodities and derivatives. Also, a rebound in consumer and investor confidence should lead to higher trading volumes.
Going into the second quarter, NYSE had 35 hedge funds long the stock, which was a 19% decrease from the previous quarter, suggesting that many hedge funds believes there is little value left in playing NYSE as a merger-arb trade. Eric Mindich’s Eton Park Capital sold off the largest stake, worth close to $50 million (see Eton’s portfolio).
Bottom line
Billionaire John Paulson still loves gold, and even with the recent plunge in gold prices, one of Paulson’s top stock picks, AngloGold Ashanti Limited (ADR) (NYSE:AU), could still provide investors with solid upside. Sprint Nextel Corporation (NYSE:S) is a solid, underrated, investment in the mobile telecom sector. If Dish and Softbank are willing to get into a bidding war over the company, there has to be some value there.
I like Paulson’s Family Dollar play given the company’s valuation and plans for robust growth. As for NYSE, I like the ICE-NYSE combo, but would avoid NYSE as a standalone business given its exposure to the weak equity-trading business.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends NYSE Euronext. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Billionaire John Paulson’s Top Moves originally appeared on Fool.com and is written by Marshall Hargrave.
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