Archive for the ‘retail stocks’ Category
The fact that consumer spending has not tanked in spite of unemployment being at over nine percent and expected to stay around this level through 2012, and continued weakness in housing is encouraging.
I must admit the fact that consumers continue to spend despite any strong or sustained job growth and continued weakness in housing is encouraging. With consumer spending accounting for two-thirds of GDP, retail sales will eventually be stronger when the jobs and housing areas improve, albeit it will likely take over a year.
So far, even without strong job growth and with continued weakness in housing, consumers continue to spend, which is helping to drive the economic renewal, albeit sluggishly. This is positive and clearly encouraging once the jobs and housing areas improve. The Fed realizes this.
Stocks surged on June 14 after the release of the May Retail Sales reading. The buying on the news would make you think it was a strong reading; but, in reality, the headline number fell 0.2% in May. Investors apparently were excited that it was not as bad as the negative 0.7% reading. Ex-auto, the reading was better than expected at 0.3%, versus the estimate of 0.2%.
Everyone knows that consumer spending drives the economy and gross domestic product (GDP) growth. The headline Retail Sales reading for April jumped 0.5%, which was slightly below the estimate of 0.6% and down from an upwardly revised 0.9% in March. Excluding the auto portion, Retail Sales increased a slightly better than expected 0.6%, although this is lower than the upwardly revised 1.2% in March.
On the plus side, consumers are spending, but the lack of consistency is troublesome. And, given that gasoline prices are high, it reduces the disposable income that consumers have to spend on goods and services. You may not buy that DVD player you had been eyeing. This may not sound like a big deal, but think about it this way: not buying that DVD player has a trickle-down effect as far as spending goes and negatively impacts total spending.
I’m extremely picky when looking at the retail sector. In fact, the majority of investment newsletters suggest avoiding retail stocks. And while I’m not totally in agreement with that view, I would be more selective with stock picking in the retail sector.
Looking at retail? Want the sure-bet plays? My investment advice and best stock advice to you would be to stick with the leading discount bellwether retail stocks, such as Wal-Mart Stores, Inc. (NYSE/WMT) and Costco Wholesale Corporation (NASDAQ/COST).
Costco delivered $348 million, or $0.79 per diluted share, in its fiscal second quarter, up from $299 million in the comparative fiscal second quarter in 2010.
The majority of investment newsletters do not like retail stocks. I’m not totally in agreement with that view, but I would be more selective with stock picking in the retail sector. Retail sales in the U.S. are estimated to surge to $389.65 billion in March from $344.24 billion in January, according to the Financial Forecast Center. Yet, if you go forward a few months, retail sales are predicted to fall to $343.09 billion by September 2011.
There continue to be mixed readings. The key is to look for same-store sales growth in retailers that sell non-essential goods. Increases here could mean consumers are spending on goods and services that are non-essential. These include electronics, appliances, furniture, autos, and other big-ticket items.
The uncertainty was clearly reflected in the weak Durable Goods reading, which was a disappointment and, in my view, worrisome. Non-discretionary spending remains a problem. Durable Goods Orders ex-transportation fell a disappointing 3.6% in January, well below the estimate calling for 0.6% growth and down from a revised 3.0% in December. A plus is that the December reading was revised upwards from 0.8%, so we could see a similar revision for the January reading.
Overall, I’m disappointed with the Durable Goods results, which in my view continue to indicate weak demand for non-essential goods and services. Again, until we see sustained improvement in jobs and housing, problems will likely continue to rise.
Consider that a key driver of the housing market is jobs. We need jobs and security in order to give buyers confidence to assume a mortgage and not worry about losing their jobs and missing payments. And, … Read More
It’s that time of the year again, when consumers look for bargains and begin shopping for the holidays. Known as “Black Friday,” the day following Thanksgiving, it is an especially important time for retailers and the economy. For many retailers, Black Friday represents a good indication of the strength of consumer spending. Some retailers record more sales during the next month than for the whole other 11 months. Given the importance of the economic rally at this time, investors will be looking for strong consumer spending.
Not only are investors dealing with financial concerns, which are driving selling capitulation and forcing major stock indices to new multi-year lows, but now we hear that retailers continue to struggle in September. Consumer spending took another step back, as the retail sales data for September were weak and confirmed the belief that consumers are scaling back on their spending during times of uncertainty. Preliminary data showed that seven retailers missed on same-store sales for stores opened a year or more with three above estimates, according to Thomson Reuters.
While the retail sector is risky, we are seeing amazing valuations in retail stocks appear given the selling. If you have a long-term view and do not mind short-term volatility, you may want to take a look at some retail stocks that have a strong history and a good potential of bouncing back when consumers start to spend again.
Clearly, these are not good times to be invested in the stock market, as the degree of selling has been intense and, in our view, unjustified in some cases. But investors need to be rational and avoid selling into a down day. You should be keeping track of stocks you like and looking for buying opportunities on market dips. If the concerted efforts to stabilize the global economies work, we could see a massive buying of stocks and strong gains for those that accumulated on dips. Of course, this is risky, as stocks remain vulnerable to the downside.
The uncertainties out there are valid and make more downside moves in stocks likely in the near term and heading into 2009, which is … Read More
More evidence of the sluggish sales in the retail sector emerged last week, as retailers released some soft numbers that rocked the stock markets on Thursday. Investors are extremely nervous that the economy may be worse than expected. With the massive $160- billion stimulus program coming to an end, its impact on the economy appears to have been limited, so there are reasons to be concerned. With consumer spending accounting for two-thirds of GDP, the fear is real.
There is now concern that retail sales heading into the fourth quarter will continue to be weak, especially given the upcoming key post-Thanksgiving shopping period heading into Christmas, which for many retailers is the key shopping period of the year.
While oil has been declining, at over $100.00 a barrel, it remains high and will impact spending. Add in the declining prices in the housing market and issues in the mortgage and credit markets and you have a nasty climate for confidence and spending.
In addition, debt levels are continuing to expand and will become more of a concern going forward, as consumers watch their disposable income fall. A good majority of people has fixed budgets and higher financing costs will reduce money available for other purchases.
Watch for the retailers in the upcoming fourth quarter. If you are currently holding retail stocks, here is what you may want to consider. Given the bearish sentiment towards retail stocks, you could write some covered call options to generate some premium, thus reducing the overall average cost of the stock in question.
If you are negative on the retail sector and want to short, … Read More
The key retail-shopping season is in full gear and so far there has been mixed news. In a survey by Thomson Financial on 43 retailers, about 22 retailers failed to meet estimates for same-store sales, while 19 beat sales estimates and two were inline.
Yet some optimism surfaced on Thursday, as it appears retail sales numbers may not be as horrible as many believe. According to the Commerce Department, retail sales data in November reported the largest increase in six months. Headline retail sales surged 1.2% in November, double the estimate of 0.6% predicted by economists and well ahead of the 0.2% increase in October. The core retail sales number that excludes auto jumped 1.8% in November, well above the 0.6% estimate.
The numbers tell us that consumers are ignoring the credit and housing market concerns and heading out to the malls and stores to buy. Big-ticket items such as appliances and furniture jumped, but the sale of autos continued to struggle. Even the higher price of gasoline at about $3.00 a gallon is failing to stop consumers from heading out. This is a positive sign if the December numbers continue to be strong.
For retailers, the number was positive and now all are hoping for similar strong results in the December, the most important month for retailers. This could make the difference between a bad year and good year in some cases.
But, even in spite of the numbers, I’m not ready as of yet to jump onto the bandwagon, as the risk still out weighs the potential at this point in my view. If you are holding retail … Read More
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