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The latest from the Rivkin report below:

One of the ads on Hotcopper is for a free rivkin book, you also get a few weeks free access to their reports. Got this email just a few minutes ago:

In the first couple of weeks of 2010, one trend that has stood out to us an opportunity in the making was the sell-off in the consumer discretionary sector. Names such as David Jones (DJS), Harvey Norman (HVN) and JBH are down 14%, 20% and 10% respectively from their recent highs. With the sector enjoying strong gains last year as evidence emerged that the retail downturn was not as severe as expected, in most cases the sector got a little ahead of itself and kept us largely on the sidelines. With the recent retail figures showing better than expected sales, there is no doubt the sector is showing signs of life (at least as far as sales are concerned), and we have been waiting for a time when the selling looks to have eased as a possible point of entry.

With the market off strongly the past couple of days on profit taking in the resources sector (although up today), there has been a clear switch into consumer discretionary names, and we feel that the downside in the sector (relative to the market) is limited. So, the only real question is which companies stand out to us?

JBH is a company we have long admired (and recommended a long time ago, not long after its float), but recent years have seen the stock priced above where we would be comfortable recommending, and rightfully so considering the company's incredible growth path. Alongside DJS's management team, there is no management that we respect more than the team at JBH, and CEO Richard Uechtritz has done a spectacular job growing the company from 10 stores in 2000 to over 120 today. Meanwhile, sales and profit growth have exploded, all the while with the company's return on equity (ROE) being the envy of the sector.

JBH truly has created a category killer, a seemingly recession-proof consumer discretionary company. After the global financial crisis hit and retail companies were cutting down sales expectations, JBH continued its incredible store rollout and increased earnings per share (EPS) by 58% in FY2008 and 44.7% in FY09. To put that in context, HVN, perhaps JBH's biggest competitor in the space, has seen EPS growth of next to nothing over the past two financial years. A lot of this has had to do with the huge store rollout the company has been running for years, but like for like sales growth was 11.5% for FY2009. But not only is JBH getting consistent sales growth from its existing store network, it has a target of 210 JB Hi-Fi branded stores (a further 21 stores in FY2010 alone), so the outlook is sensational, especially in an improving retail environment.

So there is no question that JBH is a very high quality company, and it has a balance sheet to match its growth prospects. Realistically, JBH has a lazy balance sheet, with interest cover of over 20 times, and the store rollout is funded by the incredible cash flow the company generates. Even considering the large capex requirements for new stores, we expect dividends of around 55c fully franked this financial year, putting JBH on a dividend yield of 2.6%, but this will go through the roof once the store rollout starts to slow down.

So why are we only now deciding to buy JBH despite our obvious interest in the company? Well, for the first time in years, we feel that JBH is appropriately priced for its future, especially compared to its peers. As ridiculous as this may sound, JBH was more expensive last year at $15.00 than it is now at $21.60, considering that last year analysts' forecasts had it trading at 25 times earnings, whereas we now have it trading at 20 times earnings. Unless the company disappoints, we don't see the company trading on similar multiples to its peers, and DJS is trading at 16 times earnings with limited EPS growth. So while we think JBH will have some heavy downside should the company disappoint, at this point in time we feel the downside would be less than in the past. And if JBH continues to deliver on its lofty targets, the upside is huge.

So we are therefore recommending members buy JBH at around $21.60 (no higher than $21.90) for a medium term investment. JBH is not incredibly liquid so please be patient with your buy orders. Considering downside would be relatively high with any sales disappointments, we are categorising JBH as a medium-high risk stock and as such, suggest members allocate capital accordingly.