(MONEY Magazine) – Stock of the Month Circuit City Stores cc; NYSE, $34.50; 0.4% yield

This Richmond, Va.-based retailer of electronics products, appliances, personal computers and--surprise--used cars has grown to $7.5 billion in sales in part by following a simple-sounding strategy. The company enters large but fragmented businesses that are dominated by small--and sometimes shady--operators. It then wins customers over by providing quality products and topnotch service at a reasonable price.

This customer-focused approach has worked especially well in electronics retailing, allowing Circuit City to become the nation's largest retailer of CDs, televisions and stereos. The company's sales of PCs and other home-office equipment are booming too. Analysts believe PCs and home-office products, which accounted for only 20% of fiscal 1995's revenues, will grow to more than 32% by 1997. In all, Circuit City operates 327 well-staffed electronics supercenters in 33 states across the U.S. and has plans to roll out more than 100 stores this year and next.

Most recently, the company has turned its attention to the mammoth $150 billion used-car industry, another business where consumers have to guard against rip-offs. In 1993, Circuit City launched CarMax, which so far has four outlets in three cities--Richmond, Raleigh, N.C. and Atlanta. Salespeople are low key, and prices are fixed--there's no haggling. Says Ken Gassman, an analyst at Davenport & Co., a Richmond brokerage: "Circuit City is upgrading the ethics of used-car sales the same way it did for electronics products years ago." While the company declines to spell out its plans, analysts anticipate that by the year 2000 there could be 35 to 40 CarMax stores accounting for as much as $2 billion in revenues.

Circuit City's earnings could expand by 15% to 20% a year on average through the end of the decade, analysts say. But, bear in mind, retailing stocks are volatile. "The stock is an excellent long-term investment for people who can stand the short-term ups and downs," says Tom Thomson, an analyst at Wheat First Butcher Singer in Richmond. He believes the shares can climb to $45 in 18 months, for a 31% total return.

--Mark Bautz