How You Can Profit From
the Retail Sector Bloodbath this Holiday
Season
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By: Marc Lichtenfeld
Senior Analyst
Xcelerated Profits
Report & Smart Profits Report
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Published:
November 24, 2008
Stating that the retail sector has
suffered a bombardment of bad news the last few months is like
saying the Atlantic Ocean is wet. And while we may not see
bankruptcies springing up everywhere, expect this holiday season
to be a bloodbath for retailers.
Let's look at what this year's crucial shopping season has in
store – and of course, the best ways to profit...
A Shift In American Shopping Philosophy
"Shop 'Til You Drop."
No sooner have many Americans digested their Thanksgiving turkey
and gotten over the tryptophan-induced grogginess and bloating than
they rush out to the mall, with this rallying cry ringing in
their ears.
The most important factor in trying to forecast retail sales is
income. And because we're not a nation of savers, if Americans
are making money, they're usually spending it soon afterwards.
The problem right now, though, is this: Because the country has
endured a widespread slump, Americans are starting to change the
way they think. They're fearful about their incomes.
Average consumers have already cut back on their spending, and
will likely tighten their wallets even more as we head deeper
into this overarching bear market. And with good reason, too...
The Stats Paint An Ugly Picture
Fidelity Investments started the process of laying
off 1,300 workers.
Chicago Mayor Richard Daley said CEOs who do
business in Chicago have warned him that mass layoffs are coming
this month and in December -- with more on the way next year.
According to the Bureau of Labor Statistics, over 235,000 people
lost their jobs in 2,269 mass layoff events, which are described
as layoffs involving at least 50 people in a single action. This
was the highest total since 2001.
Job losses on Wall Street alone are expected to total at least
45,000.
On top of that, initial jobless claims are at the highest level
in eight years, and we've got an unemployment rate of 6.5% -- a
figure not seen since 1994.
Those figures alone spell trouble for the retail sector, but
when people suggest those numbers could climb into the
double-digits, well... you can imagine the misery that would
ensue.
Simply put, people are just plain scared. Retail is enduring a
double-whammy. On one hand, it's suffering because people are
already getting laid off and don't have the income to buy
flat-screen TVs and iPods. And following swiftly behind it is the
very significant issue that existing workers, mindful of the
ugly trend, are worried the next swing of the axe will hit
them.
In other words, it's bad right now and likely to get worse. One
of the biggest casualties of the whole affair will doubtlessly
be the retail sector, as it gets pounded like a veal scaloppini.
It's likely that top retailers that sell pricier goods will
absorb the hardest hits. Take Macy's Inc. (NYSE: M), for
example. After the firm's disappointing third-quarter losses, as
sales dropped over -7%, the company isn't showing much optimism
for the upcoming holidays. Instead, it predicts that the next
two months will be a "nailbiter." Reflecting that sentiment
further, it slashed its 2009 budget for capital expenditures
nearly in half as it tries to cope with the changing economy.
So are there any retailers that could buck the trend and
capitalize? Here are three...
Your Christmas Stock Shopping List Should Include These Three
Retailers
Since the market hit the skids, I've been a big advocate of
compiling stock watchlists to keep on your radar. That way, when
it's time to pull the trigger, you'll have all the resources and
information right there at your fingertips. All you'll need to
do is take a deep breath and fire.
So, with that happier thought in mind, here are some retailers
you might want to start thinking about:
Kohl's (NYSE: KSS) --
Kohl's is in an excellent position to take advantage of the
bankruptcies of competitors such as Mervyns. According to
Toronto-based Thomas Weisel Partners, Kohl's has picked up 20%
of Mervyn's market share in areas where Mervyns had to exit.
Since Mervyns plans on closing another 149 stores in California,
that gives Kohl's even more room to maneuver, which should
provide a holiday boost.
Wal-Mart (NYSE: WMT) --
There's no doubt Wal-Mart's core demographic is feeling the
pinch in this economy, with little leeway to buy new televisions
and other extravagances.
However, while they can easily cast aside those extras, they
still need necessities such as food and clothing -- areas where
Wal-Mart excels because of its lower prices.
And speaking of lower prices, you're likely to see Wal-Mart
attracting new customers these days, too. Gone are the good old
days when you could just stroll into Coach (NYSE: COH) and treat yourself to
a new purse or briefcase. Luxuries like that are off the table
for now, so Wal-Mart options are looking better and better to
many people.
As CEO Lee Scott states: "Wal-Mart has momentum as we move into
the fourth quarter. At a time when our customer is feeling the
pressure of a tough economy, Wal-Mart's price leadership is more
important than ever."
One caveat, though. Despite blowing third-quarter estimates
away with profits rising +10%, Wal-Mart has trimmed its
fourth-quarter profit outlook due to economic concerns.
Dollar Tree (Nasdaq: DLTR) --
Not surprisingly, Dollar Tree shares are up significantly this
year. In fact, the company boasts the best margins in the
business right now. It chalked up double-digit earnings growth
over the past two quarters and consumer traffic is increasing.
The stock is trading at just 1.09 times its expected +14% growth
rate. We don't advocate shoplifting, but this is a steal.
... And A Happy New Year
The retail picture isn't pretty. But it's not completely ruined.
There will be a time when it will be right to get back in to
stocks like Whole Foods (Nasdaq: WFMI) and Tiffany (NYSE: TIF).
And that time will be before the economy is showing signs of
recovery.
Why? Because we want to buy them cheaply when nobody else wants
them. But we still have time before that occurs. In the
meantime, concentrate your efforts on the companies like the
ones I mentioned above -- ones that should thrive and emerge
stronger because of the hardship.
P.S. In the November Xcelerated Profits Report issue,
technical analyst Jim Stanton recommended another retailer that
should stand strong, even in these choppy market waters. That's
because it belongs to the consumer staples group and is able to
offer a huge range of everyday, essential goods at bargain
prices -- perfect for catering to consumers in the current
environment. Become a member today to find out the name of this
stock and join a team of professional traders who will give you
recommendations for the next 12 months that will allow you to
grow your wealth quickly and safely.
Click here for more information.
About Marc Lichtenfeld
[includes/bios/lichtenfeld.htm]
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