Want to know which stock market sector is making new record highs in this market? Retail stocks. Of course, the retail stocks that are doing great aren’t the big luxury names, but the discount retailers that are benefiting from the age of austerity. (See “Who Benefits in an Economy and Stock Market Like Today’s?”)
The stock market has been very kind to discount retail stocks that have produced solid revenue and earnings growth in an otherwise tough market for merchandizing. Stocks like Wal-Mart Stores, Inc. (NYSE/WMT), Target Corporation (NYSE/TGT), and The TJX Companies, Inc. (NYSE/TJX) are all doing exceptionally. The TJX Companies, which operates T.J. Maxx, Marshalls, Winners, HomeSense, and HomeGoods stores, has basically been going straight up on the stock market since 2001.
Retail stocks can be just as volatile as technology stocks. Like always, it all depends on the business cycle and what companies are benefiting from the economic times we’re experiencing. While retail stocks like Wal-Mart, Target, and TJX are doing great, Ralph Lauren Corporation (NYSE/RL) just warned on its revenues for its next quarter.
Target has really done well on the stock market since the beginning of this year. Wall Street earnings estimates have been going up across the board for all of 2012 and 2013. The company also did what all investors like; it recently increased its regular quarterly dividend by 20%. In addition, there are solid expectations for its upcoming quarter.
Retail stocks are emblematic of the current economic environment. If consumers are buying Ralph Lauren polo shirts, times are good. If business is booming for Wal-Mart, Target, and TJX, then you know there’s been a fundamental shift in the underlying economy. The consumer is king in the U.S. economy, and the performance of retail stocks is telling.
Another company in the retail stocks space that is doing very well on the stock market is Costco Wholesale Corporation (NASDAQ/COST), which has been in a long-term uptrend since the beginning of 2003. And finally, perhaps one of the most successful retail stocks in recent history has been Dollarama Inc. (TSX/DOL), which operates a chain of dollar stores in Canada. The stock just hit a new all-time high of CDN$64.79 a share, up from under CDN$20.00 a share in October 2009. The company’s shares have been going straight up on the stock market since it listed, and its wealth creation has actually been accelerating since last summer.
Retail stocks clearly reflect the health of the economy, and it’s pretty clear what’s been happening to consumer spending habits. We are in an age of austerity, and current stock market leaders in retail will likely continue with their outperformance, because consumers just don’t have the disposable income to be spending on luxury goods. Tiffany & Co.’s (NYSE/TIF) share price says it all, dropping from a 52-week high of $81.00 a share to a 52-week low of $50.00.