“It’s time to BUY!” Hilary Kramer’s “The Next Costco”

Sleuthifying Hilary Kramer's latest teaser pick

By Travis Johnson, Stock Gumshoe, July 16, 2012

I haven’t written about one of Hilary Kramer’s “Gamechanger” stocks in a while, so while lots of folks are feeling blue, doldrummy, or just plain pessimistic during the ides of July I thought I’d throw in a little of her optimism for you. She’s teasing a few stocks that she thinks her subscribers should load up on “while they’re on sale.”

So what are they? Don’t worry, we’ll look at the clues — but first, the big-picture for her optimism:

“When I launched GameChangers two years ago, plenty of people thought it was a crazy time to start a new investing service. It was the first year of what seems to be our new recurring pattern — strong first quarter, volatile second quarter, dismal summer.

“But what I knew was that if I could get investors into the right stocks, we’d make gains no matter what ….

“We took that “dismal summer” and turned it in to a buying opportunity. Yes, we bought all summer long and into September, even as the markets tanked and everyone else was selling….

“Take a look at a two-year chart for the Dow, NASDAQ or S&P 500, and you’ll see the pattern we already discussed: strong first quarter, rocky second quarter, dismal summer. Then comes the part that everyone seems to forget when volatility hits — a rally that kicks off in the fall.

“Put your money in the right stocks now, and you too will be handsomely rewarded. Remember, GameChanger stocks are companies that will continue to thrive in any sort of environment. Add in a Fed that won’t hesitate to act to keep the recovery going and the fact that in Presidential election years the markets are more likely to finish stronger than they started, and you’ve got a perfect recipe for profits.”

And then the clues — what is it that she thinks is “on sale?” We’ll look at one of ’em today:

“The first stock on our shopping list is the Costco of Latin America.

“There’s a new consumer class emerging in Latin America…and this company has a proven way to get a piece of the action.

“Per capita income in the region is up an eye-popping 57% in the last decade, and the middle class now makes up more than half of the major economies in Latin America….

“This retail giant is run by the two men who pioneered the very profitable warehouse concept in the U.S., and now they are bringing their vast selection, discounted prices, and consumer-friendly business model to the booming consumer class in Latin America as well.

“While they are headquartered in the U.S., management has made the critical decision to operate in Central and South American regions where it is the only U.S. style warehouse club, so competition is minimal.

“Revenues have increased a whopping 133% since 2006 to $1.7 billion, and earnings have grown an astounding 590% over the last 5 years. And that’s in the middle of a global financial meltdown no less….

“Membership income is increasing rapidly (up 16% last quarter alone with an 18% jump in the number of new members) and there is tons of room to expand operations in other parts of Latin America.

“With so many compelling forces driving success, I’m looking for a quick 40% gain with even bigger profits long term.”

This one’s a pretty easy chew for the Thinkolator — here she’s teasing PriceSmart (PSMT), which has also been recommended by other newsletter folks in recent years (it was also the Motley Fool’s pick as the Top Stock for 2012). They are indeed often referred to as the “Costco of Latin America,” and they come by that name honestly — you might remember that Price Club was one of the pioneers of warehouse club shopping before they merged with Costco in the early 1990s as a ploy to fight off Walmart’s Sam’s Club. The merger was rocky at the start and the founder of Price Club, Sol Price, basically took the international expansion of the concept as a spinoff company shortly after that merger and used that as a base for establishing a mostly Latin American warehouse shopping club, eventually calling it PriceSmart.

PriceSmart had a rough run for many years — they made mistakes by expanding in the wrong places (Mexico, where Walmart dominates) and by focusing on some low-margin products for a while, but they seemed to get the company back in gear and refocused with Sol’s son, Robert Price, coming back into leadership for a brief period, and since 2005, when they closed some warehouses and reorganized a bit, the stock chart clearly shows the recovery. The stock got cut in half during the financial crisis, like pretty much everything else, but bounced back admirably.

Which is not to say that it’s a “no brainer” at these prices — the company earns pretty low margins, it has large competitors despite the fact that they’ve so far avoided direct competition in many of their markets, and is dependent on consumers in emerging economies, and it’s no longer a turnaround play or a beaten down stock: the shares trade at a forward PE of 25, and analysts think they’ll grow earnings at something like 15-20% a year going forward — so the valuation is fairly similar to the far larger Costo (COST), which has a lower forward PE and lower expected growth rate, but not by a huge margin.

They’re small (market cap of $2 billion) and don̵