Investment Contrarians

Retail Sector

The U.S. retail sector is that segment of the U.S. economy related to consumer purchases at the retail level. In the simplest form, the retail sector consists of Americans buying goods and services at retail establishments…stores. The retail sector accounts for about 10% of U.S. gross domestic product (GDP).


Fear Index Hits Multiyear Low; A Bad Omen for Stock Investors?

By for Investment Contrarians | Dec 9, 2013

Investors Too ComfortableLet me begin by first stating this: I’m not going to talk about the Federal Reserve in any detail, or about the holiday shopping season and how it’s so important to the retail sector and the economy because these don’t seem to be of any great concern to the markets.

The reality is that both traders and investors appear to be really comfortable at this moment with the record-high levels in the stock market. Take a look at the multiple records recently set by the S&P 500 and Dow Jones Industrial Average; you won’t see any sign of a pullback. Yet no one seems to care—even though this is all incredibly dangerous for the stock market.

This is simply not a normal trading environment for the stock market, since the Federal Reserve has largely been responsible for the record advances, as I previously discussed in this column on Friday.

A look at the CBOE Volatility Index (VIX), or the “fear index,” reveals the current multiyear low in the VIX, which we haven’t seen since 2007, prior to the subprime mortgage-driven stock market correction in 2008, The current low level of the VIX suggests that the stock market is relaxed and is not expecting any strong moves in either direction on the horizon. Looks like the market could be in for a surprise in the New Year.

Are traders simply too relaxed? The chart of the VIX below shows the big gaps between the VIX readings and the S&P 500.

In 2007, the VIX reading was below 10, but the S&P 500 didn’t begin to sell off until the VIX increased … Read More


What the Really Bad Black Friday Numbers This Year Mean

By for Investment Contrarians | Dec 4, 2013

Bad Black Friday NumbersBlack Friday was an afterthought, to me at least. Yes, I bought a few items from the MLB store, but that’s it. But according to newly released data for this key shopping day, it appears as though I wasn’t alone.

A few weeks ago, we saw many of the key retailers reporting some results and warning that sales in the retail sector could be sluggish during the holiday shopping season. Bellwether Wal-Mart Stores, Inc. (NYSE/WMT) was nervous about sales and said the climate in the retail sector could be tough. We heard similar stories from the likes of Macy’s, Inc. (NYSE/M), Nordstrom, Inc. (NYSE/JWN), and Target Corporation (NYSE/TGT), so we knew the retail sector was in for some difficult times.

Well, it appears the retailers may have been right in their assessments, as results from Black Friday point to some disappointing sales with a retail sector in search of consumers and margins. The problem is consumers are looking for deals and discounts; they’re not opening up their wallets in a mad dash to the register.

So despite earlier store openings, extended store hours, and heavy advertising leading up to Black Friday, the big day that many retailers depend on, the early estimates show Thanksgiving weekend retail sales declined 2.7% year-over-year to $57.4 billion, based on a report by the National Retail Federation (NRF). Even so, the NRF still estimates retail sales will edge up 3.9% during the holiday shopping season.

I can’t say I’m surprised. The reality is consumer confidence remains shaky, and with the jobs market being as soft as it is, consumers are clearly reluctant to spend. The … Read More


What’s Making Me Nervous About My Favorite Retail Stocks

By for Investment Contrarians | Nov 26, 2013

Favorite Retail StocksRetailers are likely sitting on the edge as we head into the Thanksgiving weekend on Thursday, which means Black Friday is nearly here. The three days from Friday to Sunday are the most critical period in the shopping calendar for the retail sector, followed by “Cyber Monday” (the Monday after Black Friday when many retailers offer steep discounts online), which has historically been the biggest one-day online shopping event of the year.

So these four days are make-or-break for some retailers. What happens during these days could also help dictate what happens in December and 2014. And of course, what happens with consumer spending and the retail sector will dictate the gross domestic product (GDP) growth.

Yet while I was previously more positive towards the retail sector, I’m beginning to have some doubts. Not only am I worried about the weak jobs market, but confidence levels aren’t exactly high now, either. Currently, I expect the retail sector will face greater headwinds in December and early into 2014.

The reality is that the average consumer is uneasy about their economic situation, so they are nervous and hesitant to spend. This will impact the fourth-quarter GDP and make it much more difficult for investors to play the retail sector.

Retail sales advanced for the second straight month in October; albeit, at a muted pace, but it was still nonetheless better than what the market watchers expected. Sales on an ex-auto basis increased 0.5% in October, above the 0.4% Breifing.com estimate and in line with September’s reading. It was also the second straight up month for the retail sector.

But despite these advances, … Read More


Even with Discounts Flooding Retail Sector, These Stocks Prospering

By for Investment Contrarians | Nov 25, 2013

Flooding Retail SectorAs my regular readers know, over the past couple of months, I’ve repeatedly raised my concerns that the stock market is increasingly becoming out of touch with the underlying reality of our economy. Now, the latest batch of reports from companies is showing just how inflated the stock market really is.

One market segment that I have warned readers about is the retail sector. In my opinion, the retail sector has become far overvalued in terms of potential corporate earnings growth.

Now that we’re coming into the holiday season, I believe this year is going to be one of the worst for the retail sector in generating any corporate earnings at all.

It really boils down to two things: the consumer and the companies within the retail sector.

The average American, as we all know, is still getting the same wages, getting hit with a higher payroll tax this year, and is still uncertain about their future due to high unemployment levels.

Considering the situation of the average American, companies within the retail sector are literally doing everything possible to convince consumers to spend in order to increase revenues and, hopefully, generate some corporate earnings.

Unfortunately, this heavy amount of competition for fewer dollars means disappointing corporate earnings.

Target Corporation (NYSE/TGT) just recently reported its third-quarter results, with corporate earnings falling 46% year-over-year. While part of the decrease was due to a disappointing launch in Canada, much of the decline in corporate earnings was due to consumers’ unwillingness to spend. (Source: “Target Reports Third Quarter 2013 Earnings,” Target Corporation, November 21, 2013.)

You don’t have to believe me when I … Read More


My Favorite Retail Stocks This Holiday Season

By for Investment Contrarians | Nov 13, 2013

Retail Stocks This Holiday SeasonIn my past two commentaries, I discussed the third-quarter gross domestic product (GDP) growth and October jobs growth. Both metrics looked good on the surface, but after closer inspection, there were clear gaps.

Both of the reports suggest that consumers may not be in the spirit to spend cash this holiday shopping season. With Black Friday just around the corner, for the retail sector, this one day of the year is critical and can generate a key portion of the year’s total sales.

We are already seeing a mad dash by the retailers to open earlier on Black Friday and extend the shopping day. Some are opening at midnight, others before midnight.

At stake in the retail sector are the consumer dollars and the intense competition I expect to see, especially among the larger department stores. We may see J. C. Penney Company, Inc. (NYSE/.JCP) take one of its final gasps, as the company fights to survive with declining sales and dwindling cash.

In the retail sector department store area, I would stick with Macy’s, Inc. (NYSE/M) and Nordstrom, Inc. (NYSE/JWN). Macy’s and Nordstrom, along with Wal-Mart Stores, Inc. (NYSE/WMT) and Kohls Corporation (NYSE/KSS) will report quarterly results this week. The key to listen for in these companies’ reports is what each has to say about the upcoming holiday shopping season.

The reality is that based on the soft personal spending component of the GDP along with the lower quality of jobs in the nonfarm payrolls report, I expect the retail sector will struggle through the holiday season.

I expect heavy discounting in the retail sector to attract shoppers and … Read More