Staples, Inc. (SPLS): One of the Best Kept Retail Secrets

At a time when many retailers are in a flux and are faced with uncertain futures, Staples, Inc. (NASDAQ:SPLS) is one of the most underappreciated stocks in the industry, offering investors a robust dividend yielding 3.7%. Much of the industry’s weakness, including Staples’ – down 15% year to date – is a product of online e-commerce competition, high unemployment, and tight credit.

One positive for the industry is the expected increase in consumer U.S. spending of 2.4% in 2013 after a 1.9% increase in 2012. In general, specialty retailers face greater volatility than consumer staples-based retailers, but in a rising economy, the former tends to provide greater upside. Staples calls billionaire Ray Dalio as one of its big name shareholders (see what else Ray Dalio is buying).

Staples expects sales to be relatively flat in FY2013 as the electronics and office supply store looks to reduce square footage in and effort to boost overall profitability. This should only assist with further bolstering its solid balance sheet and robust cash flow generating capabilities.

Other notable electronics and office-focused retailers that are competing with Staples includes Office Depot Inc. (NYSE:ODP), Best Buy Co., Inc. (NYSE:BBY), OfficeMax Incorporated (NYSE:OMX), and RadioShack Corporation (NYSE:RSH). Office Depot has seen positive reinforcement from top shareholder Starboard Value, a fund that has made several insider purchases of late. This office supply store is one of Staples’ smaller competitors with a sub-$1 billion market cap. Although Office Depot has missed earnings each of the last four quarters, it has managed to grow its stock price 60% year to date. Billionaire D.E. Shaw is one of Office Depot’s top name shareholders with nearly 1 million shares at the end of last quarter (see D.E. Shaw’s newest picks).

Best Buy, meanwhile, has been beaten down this year as it faces some of the most robust pressure from online e-commerce companies, mainly Amazon. Best Buy missed earnings by at least 30% in each of the last two quarters, and despite speculation that founder Richard Schulze might make a bid for the company, it still trades at its lowest levels since 2000. Best Buy pays the highest dividend of the five retail stocks listed here, at a 4.8% yield, but its deteriorating cash position might cause concerns for a possible dividend cut. Billionaire Ken Griffin – found of Citadel Investment Group – sold off over 90% of his Best Buy shares in 3Q (see Ken Griffin’s other bold moves).

OfficeMax is expected to post a decline in 2012 sales, at 1.2%. The company has been closing underperforming stores in an effort to cut costs, and like counterpart Office Depot, has managed to push its stock price up over 60% year to date. Billionaire Steve Cohen of SAC Capital made a big bet on OfficeMax last quarter (check out Steven Cohen’s top picks).