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Our only earnings story of the week wasn't immediately worth cheering but the only really sour note was Wall Street's response to the numbers. The numbers themselves were not perfect, but far from awful.

 

Expectations were never high around Dollar Tree (DLTR: $95, down 13%) delivering positive year-over-year earnings growth. That's not what the company is all about at this phase in its evolution and it's not what earned it a slot in our Special Opportunities portfolio. We're here because in the (relatively unlikely) event of a consumer shock, investors have been trained to take shelter here. This is one of the most defensive of all Retail stocks.

 

But that defensive posture means the business doesn't grow fast. Management doesn't take chances. The last big strategic move we saw here was the acquisition of rival Family Dollar, and that business is taking a few years to digest. Anyone who was expecting dynamic results until that process is complete is looking at the wrong company.

 

Instead, what Dollar Tree gave us was the persistent faint revenue growth (4%) that demonstrates the progress we wanted to see, but restructuring Family Dollar hurt the bottom line more than expected. The 5% earnings deterioration we expected turned into 8% as the company booked just $1.08 per share instead of our $1.13 target. Management considers that the worst-case scenario as Family Dollar renovations speed up, the company's distribution network get streamlined and trade remains in the background.

 

As the business pivots, pressure on the margins will relax. Likewise, any progress on trade will ensure that the future will be better than the recent past. However, that pressure remains in place for the time being, which is what we suspect Wall Street really resented yesterday. Revenue guidance for the current quarter is exactly where it was three months ago but year-over-year earnings growth will remain elusive.

 

We've been here before on this stock, and yesterday's slide only rolls back three months of recent progress. Dollar Tree is back where it was in August. We might even see it break below the $90 summer bottom while the market makes up its mind on what really matters here. But we didn't let go then and we aren't giving up now. This looks more like a mismatch between sentiment and the fundamentals like what we saw around our Aggressive portfolio in the last few months.

 

When the market turned its back on growth, small Tech stocks were punished for hitting their growth targets, purely because they aren't delivering on the bottom line or paying a dividend yet. Now we're seeing defensive stocks face a similar cold wall because they're too defensive . . . nobody wanted growth from Dollar Tree a week ago, so selling the stock because it's going to need another quarter to turn the corner demonstrates a real lack of clarity.

 

And when other investors aren't thinking clearly, we see opportunities. Dollar Tree will come back. If you want to cushion your portfolio from recession risk, this is a good place to park cash. Black Friday numbers will start coming in soon. If they're even remotely weak, this stock will be one of the winners.

 

Either way, we're racking up wins. Even counting Dollar Tree's reversal, the BMR universe is now up 3% since earnings season started. Our recommendations have already turned the quarterly corner. We've made money this season and there's nothing to get in our way until the next earnings cycle. And as the group as a whole rallies, the scattered disappointments buy time to heal and get in position to lead the next wave. Happy Thanksgiving. You've earned it.

 

We're giving you a long Thanksgiving break. See you Sunday evening with the Weekly Newsletter.