The health of the American consumer clearly has pulled back a little. Earlier this week, we saw a lackluster gain in retail sales that was propped up by strength in autos, pointing to cutbacks in other things like restaurants and electronics.
I previously highlighted stocks that should be able to break the trend of weaker consumer spending. These companies have the products people want are doing very well in spite of flat spending.
Of course, as exciting as it is to find companies that can grow even in a tough environment, it is equally important to find those retailers that should be avoided because of weak fundamentals. These stocks will get hammered if the consumer slowdown continues — thus, you must either sell or avoid them until their fundamental conditions improve.
Aeropostale (ARO) was once a hot growth stock, but it seems to have lost the always-fickle teen market. Although management is said to be scrambling to find the styles that recapture the market, the jury is still out on how successful Aeropostale will be going into the critical back to school shopping season. Sales have been flat all year, and analysts have been lowering their estimates for this year and 2014. Portfolio Grader downgraded ARO shares to an “F” back in March, and the stock remains a “strong sell” recommendation.
The financial media has been talking of the potential for a turnaround at JCPenney (JCP) for well more than a year now. It has not happened, and the retailer has changed directions once again. If JCPenney is ever successful in righting the ship, those improvements will show in Portfolio Grader — but that time is not now. JCP has had to tap into its credit lines to provide operating capital and likely will have to engage in a very costly capital raise before much longer. JCP shares are ranked a “D” by Portfolio Grader, indicating you should sell or avoid the stock.
Coldwater Creek (CWTR) is a women’s apparel retailer that appears to have lost its way. A continued string of operating losses has pretty much evaporated the company’s capital base. CWTR has had to borrow money at very high rates to fund operations, and at this point it looks unlikely that Coldwater will meet a large debt maturity in 2017. Sales have declined every year since 2008, and no recovery is in sight. Portfolio Grader has given CWTR shares a “D” grade, indicating investors should continue to avoid the stock no matter how tempting its low share price.
Louis Navellier is the editor of Blue Chip Growth.