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Sunday, 10/24/2004

Limitless
By Nich Sheldon
LTD - Limited Brands Inc

Company Description

Limited Brands, through Victoria's Secret, Bath & Body Works, Express, Express Men's, Limited Stores, White Barn Candle Co. and Henri Bendel, presently operates 3,828 specialty stores. Victoria's Secret products are also available through the catalogue and http://www.VictoriasSecret.com . (Source: Company Press Release)

[Source: Company Press Release]

Reasons to Invest:

Flu season is officially here and I have been lucky enough to catch the bug (Sarcastic Grin). Needless to say, I was too sick to write a DRIP last week, let alone update the Portfolio. After a few weeks on the sideline, I am as ready as ever to find yet another profitable pick for the DripAdvisor.com Portfolio. Thank God for the miracles of modern medicine, I feel a thousand percent better and believe that I have found the perfect DRIP that resembles my recovery. Okay, okay, maybe this week's Drip of the Week won't gain a thousand percent, but lets shoot for ten percent year over year, and we'll call any gains over the benchmark ten percent level, "the cherry on top."

Open up wide and say "awe." It looks like this Week's Drip of the Week is witnessing some inflammation in its 1st & 2nd quarter earnings. I don't know about you, but if their books look inflamed then I believe that our wallets should too. Limited Brands Inc (NYSE:LTD) saw their sales rise by 9 percent to $4.19 billion, and their net income increase by a margin of 23 percent to $244.6 million.

Victoria's Secret, Express, Bath & Body Works, Henri Bendel, and apparel importer Mast Industries (to name a few) are all owned by Limited Brands. LTD trades for 17 times its expected full-year earnings (Jan. 2005) of $1.35 per share. LTD's operating momentum is through the roof, and their 2.03 percent dividend yield is 20 percent higher than the 1.7% yield for the run of the mill stock in the S&P 500.

Something that is far too impressive to ignore is the fact that LTD just announced a stock buyback program of $2 billion, which is nearly 20 percent of its shares outstanding. By instating the stock buyback program, management is not only showing their confidence in their product(s), but they are also reducing the number of shares outstanding, which boosts earnings per share, and increases profitability for the company.

On a post-buyback basis, Limited Brands intends to pay a special $500 million cash dividend, which bodes well for those that are invested in its shares. This past Tuesday, LTD sold one billion in ten year notes paying a 5.25% coupon. Proceeds from the sell are going towards funding for the two billion stock buyback and the $500 million special dividend (that will be paid after the buyback occurs). The next 12-18 months look attractive to me, because I believe this is the period of time that we will see the most appreciation in LTD's stock.

The one-year earnings per share growth rate on LTD is 43.47 percent, while the one year dividend percentage growth rate is 33.33 percent. These percentages are among the highest percentages I have seen in terms of one-year growth rates. As dividend investors, the ideal scenario is to see the earnings per share growth rate just overtop of the dividend growth rate. Generally speaking if the EPS is growing faster than the dividend percentage, the dividend percentage is likely to grow as well, which means that we are most likely going to see our quarterly dividend payout increase in the near future. Since the EPS is also growing faster than the estimated one-year sales growth rate (5.79 percent), this usually means that costs are being effectively controlled.

Limited Brands daily chart looks nothing shy of phenomenal, especially since the stock has gained more than 13 points since late February of last year. The stock has glided through a 20- month regression channel with vigor, testing the bottom/top support/resistance bars along the way. I note that the MACD and Stochastics indicators are both on buy signals. However, the stock is currently testing the top bar of its channel and this means that a pullback is most likely going to occur in the next few weeks. After all, LTD has tacked on five points in the past three months, with far more winning days than losing days.

In fact, if you know how to trade options, speculation tells me that LTD would be an ideal short, or bearish opportunity. I could see a pullback to the 22.70 range, which was the low on October 8th, and the lowest the stock has traded since gaping higher on October 7th. The only reason I am saying this is because I believe that if you hold out on buying LTD for a week or so, you may be able to buy your initial share at a lower premium.

Okay, back to my longer-term perspective. Fifteen of the past twenty-four months have closed higher, and the weekly chart shows the same channel as the daily chart. What's even more impressive is the fact that LTD's stock hasn't closed below any of its underlying moving averages (on the monthly chart) since October of last year. While there have been four losing months since last October, the stock has really maintained its gains, and/or picked up momentum along the way. The monthly MACD and Stochastics indicators are both on buy signals and in overbought territory.

LTD has a dividend of $0.48 per share owned per year, which tallies out to a 2.03 percent annual yield.

While consumer confidence/spending remains a little sideways, I still believe that playing a stock like LTD is worthwhile. The holiday season is just around the corner and I know that people are going to go shopping, regardless of whether or not they have to put their purchases on a credit card. Men, think about it, what are you going to get your wives for Christmas? How about something nice from Victoria's Secret, or some nice bath salts from Bath & Body Works? If the publics can't help increase your portfolio profits, why not stand behind the investments you make, and invest in their products? Make sense? There is nothing wrong with helping out the companies that you invest in, and actually it makes more sense to invest in their products when your retirement, grandkids tuition, and risk capital is in their hands.

This ends another exciting episode of the DripAdvisor.com Drip of the Week. Stay tuned next week, as we will spotlight another stock worthy of the DripAdvisor.com limelight.

Remember:
Plan your trade, and trade your plan.

Until Next Week,
Nich Sheldon
Editor In Chief
www.dripadvisor.com
questions@DripAdvisor.com

Broker Recommendations

Strong Buy         5
Buy                6
Hold              13
Sell               0
Strong Sell        0

Brokers Covering  24


DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = No
Accept Foreign Accounts: No
Temper Enrollment: Yes

Min/Max Investment = $30-$6,000/quarter


Reinvestment Fees - 
Dividend investment fees: $0.00
Cash investment fees: $0.00
Auto reinvestment fees: N/A


Transfer Agent:
First Chicago Trust
800-317-4445


Corporate Headquarters:
Three Limited Parkway, P.O. Box 16000
Columbus, OH 43216
Phone: (614) 415-7000
Fax: (614) 415-7094



 
 

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