Coinstar Inc. (Nasdaq: CSTR): The Perfect Stock for Bulls & Bears
by Louis Basenese, Advisory Panelist
Senior Analyst, The Oxford Club
Wednesday, May 13, 2009: Issue #996
It seems everybody, including The Wall Street Journal, is pitching a tent in the "too far, too fast" camp - the belief the stock market rally is premature, overdone in light of the economic conditions and unprecedented. At least three separate stories from yesterday's paper posited such a theory.
But ignore the chatter. Although plausible, the arguments are profoundly false.
As I explained in an interview, we've witnessed seven similar stock market rallies of 25% or more in eight weeks for the Dow...
And guess what? Every time, the rallies have continued. For at least six months. And in six out of seven cases, they have lasted for another year.
My point is not to be the lone voice of dissension - or an unabashed, ignorant bull. I merely want to shed some truth on the subject. Because it's perfectly possible the rally could continue...
Then again, it might not. Which brings up the real reason for writing today.
Whether you believe we're in a new bull market, a bear market rally destined to collapse, or as one pundit put it oh so clearly, "A cyclical bull market in a secular bear market" (come again?) - I've got the perfect stock for you. Coinstar is positioned to rally no matter what the markets do next.
Coinstar Inc. - Profiting From Pocket Change and Cheap Thrills
While we can argue all day long about the next move for the markets, we can agree on two things.
- First, unemployment is destined to rise. It's a lagging indicator, so even if the economy perks up in the second half of this year, as many expect, the layoffs will continue well into next year.
- Second, the severity of the current recession dramatically impacted consumer spending, presently and for the foreseeable future. That tends to happen when you lose your job, fear it's imminent or see others around you coping with no income.
Both conditions play right into Coinstar Inc.'s (Nasdaq: CSTR) hands.
You see, the average U.S. household has about $90 of spare change just sitting around. The severity of the current economic slowdown will prompt many of them to convert it into cash to fund life's mini-indulgences.
Coinstar eliminates the tedious and time-consuming task of rolling coins. The company operates more than 18,000 coin-counting machines in supermarkets and other retail stores. All you have to do is dump the change into a sorting basket. The machine counts it and then spits out a voucher, which can be redeemed for cash at the nearest register.
International expansion and the addition of 3,200 new machines in Wal-Mart stores this year will only make the company's services more accessible.
Coinstar Positioned to Profit From Ultra-Thrifty Consumers
But Coinstar's positioned to profit from the new class of ultra-thrifty consumers in yet another way. Thanks to timely acquisitions of DVD Express and Redbox, they also operate the largest network of self-service DVD rental kiosks.
Instead of shelling out $5 at Blockbuster, consumers can pay $1 a night at any of the company's 12,900 kiosks located in supermarkets, drugstores and McDonald's throughout the country. Each machine holds 150 titles (with multiple copies) at a time, almost all of which were released in the last six months.
And the recent results prove consumers are buying into the concept:
- Redbox's sales soared 180% in 2008 to $400 million. And the momentum is continuing this year. In the most recent quarter, Redbox sales jumped another 156%.
- A bankruptcy filing by Blockbuster, which appears imminent, should only drive more consumers to the company's kiosks.
- And they will be readily available, as management plans to almost double the number of kiosks to 20,000 in 2009.
To sum it all up, whether this stock market rally continues or falters, this recession will impact consumer spending for a long while. And more people will be forced, or choose, to look for cheap thrills and a way to "monetize" their pocket change. Coinstar is the only way to capitalize on both... and rally, regardless where the markets head next.