If you thought I was overly optimistic in December with my prediction that the indexes would climb over 20%, you must have really thought I was off my rocker when I named retail as my No. 1 sector for 2012 — especially in light of their admittedly disappointing December results.
Despite shoppers clogging malls and shopping centers in record numbers for the hottest deals over the holidays, December retail sales gained only 0.1%, versus the 0.3% gain that was forecast.
Even so, I’m sticking to my guns. Although retail sales were certainly one of the big weak points in the economic reports released in the last several weeks, there’s an easy explanation for that: Shoppers simply started their holiday shopping early last year. As we saw when December sales came in, November sales needed to be revised 0.4% higher, which was quite a significant increase — and I’m not going to be surprised if December sales are also revised upwards.
But, as with everything, it’s about the big picture, not just the latest data points. The U.S. economy is improving, consumers are growing increasingly confident and there’s a lot of pent-up desire to spend. But that’s not to say shoppers are going to just go and clean out store shelves. Nope, the lessons that households and businesses have learned from the financial crisis are here to stay.
That means it’s more important than ever to separate retail winners from losers, and right now, several retail stocks on my buy list have proved their mettle through this challenging shopping season.
Since the beginning of 2012, shares of Ross Stores (NASDAQ:ROST), the leader in discount clothing, climbed over 6%, and Priceline (NASDAQ:PCLN) , the online travel website that lets buyers name their own price for everything from airline tickets to rental cars to cruises, popped over 11%.
And it’s not just discounters that are benefiting. Consumers are still willing to treat themselves to little luxuries at stores like Victoria’s Secret and Bath & Body Works, as we saw when Limited Brands (NYSE:LTD) raised its Q4 earnings target. And gadgets are still hot buys — Apple (NASDAQ:AAPL) products are flying off the shelves, and the stock is up 11%. Finally, there is also a drive towards healthy choices and unique products, a trend I’m playing via Whole Foods Market (NASDAQ:WFM), which is up 6%.
What makes these companies special is that they all offer the consumer great value for the price. For example, while shopping at Whole Foods is expensive, buyers also understand that the store offers quality that is unmatched at other grocery stores. And while Apple’s iPad isn’t the cheapest tablet, its ecosystem and ease-of-use are unparalleled. Consumers are increasingly willing to open their wallets, but they’ve become pickier about their choices.
