It’s a Screaming Buy for Retailers!

Buy for RetailersThe retail sector showed some strong spending in January, which could bode well for the remainder of the year, given the improved jobs growth, higher home prices and property wealth, and the aversion of higher taxes for those individuals earning less than $400,000 per year.

The Thomson Reuters Same Store Sales Index (comprising 18 U.S. retail chains) increased a better-than-expected 5.8% in January, beating the 3.5% estimate and the 4.4% advance in January 2012. The news is good for the retail sector in 2013.

The SPDR S&P Retail Index shows a steady uptrend since its sharp decline in August 2011, highlighted by an ascending triangle and a break above the horizontal resistance line. The strong relative strength and moving average convergence/divergence indicator are flashing a “buy,” based on my technical analysis.

XRT SPDR S&P Retail Index stock market chart


Chart courtesy of

The chart shows the retail sector is likely headed for higher gains.

The big winners in January were diverse, but the major department stores in the retail sector reported some excellent results that blew away Wall Street estimates.

Macys, Inc. (NYSE/M) reported a stellar 11.7% surge in its January same-store sales, well above the average five percent estimate, based on Retail Metrics Inc. (Source: Townsend, M., “Macy’s Leads Biggest Same-Store Sales Gain Since 2011,” Bloomberg, February 7, 2013.)

Kohls Corporation (NYSE/KSS) was equally impressive, with a 13.3% increase in same-store sales, well above the 3.1% Thomson Reuters estimate.

Nordstrom, Inc. (NYSE/JWN) saw same-store sales surge 11.4% in January.

The Gap, Inc. (NYSE/GPS), which was struggling years ago, is now well on its way to retail stardom, reporting same-store sales growth of eight percent in January, well above the four percent Thomson Reuters estimate.

In the high-end retail sector market, luxury retailers continue to stall on lower spending on high-priced items. (Read “Luxury Stocks That Are Leading the Pack.”) Coach, Inc. (NYSE/COH) is struggling with sales and has fallen to its 52-week low. The top luxury retailer continues to be Michael Kors Holdings Limited (NYSE/KORS), which is nearing its 52-week high, while Tiffany & Co. (NYSE/TIF) attempts to rally. All three companies are also plays in China’s retail sector, where brand buying is significant and growing.

On the other, lower end of the retail sector spectrum, discount stores, such as Dollar General Corporation (NYSE/DG), Dollar Tree, Inc. (NASDAQ/DLTR), Family Dollar Stores, Inc. (NYSE/FDO), and Wal-Mart Stores, Inc. (NYSE/WMT,) are continuing to deliver some good results, as consumers continue to search for the best prices, which was a popular sentiment with the recession.

On the smaller side, PriceSmart, Inc. (NASDAQ/PSMT) is worth a look in the retail sector, having already returned some impressive gains.

In the growing global jeans market, including China and India, American Eagle Outfitters, Inc. (NYSE/AEO) is near its 52-week high. An up-and-coming maker of jeans in both the lower- and high-end space, True Religion Apparel, Inc. (NASDAQ/TRLG) is an interesting play. The stock is quickly approaching its 52-week high of $30.66 after reporting strong sales growth of 15% year-over-year in the fourth quarter, easily beating Thomson Financial estimates.

The key to stock market success in the retail sector is to search for a company that offers some sort of niche or a product that differentiates it from its competitors. I also like to look at retailers that may be currently in the dumps with investors, but that have strong brand awareness. J. C. Penney Company, Inc. (NYSE/JCP) is a price example in the retail sector.