Stay Away From (Most) Big Retailers

by Louis Navellier | August 12, 2013 3:05 pm

Big retail remains fairly moribund.

Consumers still are very cautious, and although consumer confidence readings are higher than they were in past years, the specter of higher interest rates and gas prices is keeping the good mood form making it into the store. Job security still is very much an issue with the unemployment rate at 7.6%, and the bulk of job creation in recent months has been part-time, lower-paid jobs.

As a result, people still are being very selective about where they spend, and this caution is showing up in the Portfolio Grader[1] rankings of larger store chains.

JCPenney (JCP[2]) is one of the worst in the group, and there is already talk of forcing out the new CEO. The stock has been a “strong sell” since last November and remains an “F.” Sears Holdings (SHLD[3]) has been losing customers at both its Sears and Kmart stores and does not seem to have a valid plan to win them back. This stock is also a “strong sell” right now. Mid-level chains like Kohl’s (KSS[4]), and even the high-end Nordstrom (JWN[5]), are not seeing strong results right now, and are rated “sell” by Portfolio Grader.

There are some bright spots, however. Family Dollar (FDO[6]) has been winning the battle for cost-conscious consumers, performing considerably better than competitors like Dollar Tree (DLTR[7]), which is rated a “sell.” FDO exceeded analysts’ estimates for sales and profits in the second quarter, and investors have taken notice of the stock. This week, Portfolio Grader upgraded the stock to a “B,” and the stock is now a “buy.”

Macy’s (M[8]) is the best-performing mid- to upper-level department store right now, as a result of its very successful online sales effort. The company has used the integration of online and in-store sales to take market share away from its competitors like JCPenney and Nordstrom and is posting favorable sales and earnings comparisons.

Macy’s is generating substantial free cash flow and is using the dollars to fund aggressive stock buybacks. In 2012 it spent more than $1 billion repurchasing stock, and, so far in 2013, has already bought back more than $300 million in stock. The strong fundamentals have been noticed by Portfolio Grader; the stock has held “B” ranking since May and remains a “buy.”

Consumers are still being very cautious and are selective about where they spend their money right now. Investors should do the same and stick to the retailers with the best fundamentals — at least until we see a more robust spending environment.

Louis Navellier is the editor of Blue Chip Growth[9].

  1. Portfolio Grader:
  2. JCP:
  3. SHLD:
  4. KSS:
  5. JWN:
  6. FDO:
  7. DLTR:
  8. M:
  9. Blue Chip Growth:

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