Wal-Mart to the Rescue

At least someone is making money in this recession.

This morning, giant retailer Wal-Mart Stores, Inc. (NYSE/WMT) reported a 10% increase in third-quarter profit to $3.14 billion on sales of $99.0 billion. These earnings “beat the street,” as analysts were not expecting Wal-Mart to report a 10% increase in profit.

The shopping patterns of consumers have changed quickly. The following is a list of luxury-item companies and how their stocks have fared in price since the beginning of September to today (approximately the past 75 days):

— Nordstrom, -58%

— Whole Foods, -41%

— Polo Ralf Lauren, -47%

— Coach, -49%

— Starbucks, -42%

— Harry Winston, -49%

Consumers are shifting away from higher-end goods and moving to what I call “affordables.” While the Dow Jones Industrial Average is down 28% in the past 75 days, the six “luxury” stocks I list above are down an average of 48%.

Now the other side of coin: consumers, concerned about the economy and all the bad news they hear about it, are moving to where they believe they can get value for their money. Wal-Mart’s stock is down only 11% in the past 75 days, 99 Cents Only Stores (NYSE/NDN) stock is up 48%, and Family Dollar Stores (NYSE/FDO) stock is up 14% in the same period.

Sales for retailers this past October were reportedly the worst in 35 years. You’ve undoubtedly heard about Circuit City Stores, Inc.(NYSE/CC) going into Chapter 11 and Best Buy Co., Inc. (NYSE/BBY) announcing a “seismic” shift in consumer demand for its products yesterday. (Personally I feel that if Wal-Mart did not get into the flat panel TV business and stayed focus on the lowest priced staples such as food, clothing and household necessities, it would be faring better.)

For investors, the question is whether the luxury stocks that are down about 50% in 75 days are now a buy. My resounding reply is NO! In investing, the trend is your friend and the luxury retail stocks are trending down quickly. Remember that the Dow Jones Industrial U.S. Home Builder Stocks are down 84% since the housing market topped out. Imagine all the people who bought these stocks on the way down hoping the bottom was in.

This will definitely be one-hell-of-a humbug holiday season for retailers…probably the worst in decades. And an unprecedented stock buying opportunity is developing for investors, only we are not there quite yet.