Tractor Supply: Best of the Splits

09/20/2013 7:00 am EST

Focus: STRATEGIES

Neil Macneale

Index Provider, 2 for 1 Index

Each month we add one stock to our model portfolio, chosen from among those that have announced 2-for-1 stock splits. For this month, there were four stocks under consideration, notes Neil Macneale, editor of 2-for-1 Stock Split Newsletter.

Last month's announced stock splits were DaVita HealthCare Partners (DVA), Alliance Fiber Optics (AFOP), DSW Inc. (DSW) and Tractor Supply (TSCO).

DaVita, ranked Number Two—even without a dividend—provides dialysis services at its 1800+ clinics in 43 states. Warren Buffet likes DVA and owns over 14% of the company. This could be a second buy for those still building up to 30 stocks.

Alliance Fiber Optics has had a fabulous run up in its stock price this year, probably a belated recognition of its five-year, 23% average annual earnings growth. The stock seems fairly priced at the moment and I think its price will likely flatten out for a while.

DSW operates 300+ shoe stores in 40 states and also sells through dsw.com. This is an interesting company, carrying no long-term debt and paying a moderate 1.18% dividend. However, it's fairly volatile and not as profitable as it should be, given its other numbers.

Of the four August splits under consideration, Tractor Supply is the clear winner. Tractor Supply was an amazing stock for the 2-for-1 portfolio between August, 2010 and April, 2013, earning a 53.4% annualized return.

Lest you think I'm just being nostalgic, I did run all the splits through the 2-for-1 ranking program and TSCO did come out on top. It has higher PE and price-to-book ratios than I like, but almost all the other important metrics scored well.

TSCO sells feed and supplies through 1,223 retail farm and ranch stores in 46 states, catering to recreational farmers and ranchers.

This is a growing and wealthy demographic not suffering from the vagaries of the economy. Apparently TSCO's Board thinks its booming business is going to continue for the foreseeable future.

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