by David Fessler, Advisory Panelist

Another Angle on Consumer Staples…

It’s no secret that Wal-Mart (NYSE:WMT) is making hay in these uncertain times. Consumers have continued to hunker down, buying only what’s absolutely necessary, for the lowest possible price.

It makes Wal-Mart the destination of choice for large shopping trips.

But small convenience stores – many attached to the 165,000 gas stations around the country – are selling more staples than ever before. The reason? They have to: dwindling gasoline revenues – thin when gas was at $4.00 a gallon – are now practically non-existent.

Of course, all of these small convenience stores have to get their goods from somewhere. Unlike Wal-Mart, which has its own fleet of semi’s, most of the convenience stores rely on distributors to get the cigarettes, produce, and other general merchandise they sell.

And one of the largest distributors to the convenience retail industry is Core-Mark Holdings Company (Nasdaq: CORE).

Core-Mark distributes a line of national and private-label products to over 24,000 locations in 50 states and five Canadian provinces through 26 strategically located distribution centers. It provides storeowners with logistics, technology, and marketing programs to help them sell their products.

In addition to traditional convenience stores, Core-Mark also services specialty stores, liquor stores, and drug and grocery stores.

How can it offer produce and other products with freshness that rivals large grocers? The company maintains a large fleet of “tri-temp” semi-trailers. These trailers haul frozen, refrigerated, and non-refrigerated goods all at the same time, saving trips and money in the process.

The company maintains a high-frequency delivery schedule to keep perishable freshness levels similar to that of big chain grocers.

And it’s paying off in spades for Core-Mark: net income for its most recent quarter was $2.20 per share, compared to a net loss of $0.05 per share for the same period in 2008.

The company also increased its guidance for 2009, raising its expected sales targets from 46.3 billion to $6.4 billion. At the same time, the company expects capital expenditures to decrease by approximately 10% for 2009.

Investors take note: while Core-Mark stands to do well in this time of consumer discretion, its market capitalization is roughly $275 million, putting it squarely in the realm of small-cap stocks – which have traditionally done best coming out of recessions.

And the big guys are starting to take notice:The company has been experiencing heavy institutional buying of late, and is currently trading within 20% of its 52 week high.

Good investing,

Dave Fessler

View original at: Investment Advice and Investment Research with a Contrarian Point of View

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