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Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
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Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Profit from Consumers' Thrift
with Discount Retailers |
[http://www.streetauthority.com/includes/article-top-ma.htm]Published:
January 29, 2009
Last year, the S&P 500 fell -37%, its worst return in more than 70
years. But not all stocks performed poorly. Of the 30 stocks in the
venerable Dow Jones Industrial Average, two actually managed to close
higher last year, despite the broader market carnage.
Given the gloomy economic environment, many investors would guess that
the best performers were companies in traditionally defensive industries
such as healthcare or the food industry. But, that wasn't the case in
2008. Dow components Kraft Foods (NYSE: KFT) and Johnson & Johnson
(NYSE: JNJ), considered two of the most defensive names in the Dow, fell
-18% and -10%, respectively.
Few would guess that the best performers in the Dow last year were
actually both retailers -- Wal-Mart Stores (NYSE: WMT) and McDonald's
(NYSE: MCD) returned a solid +19.5% and +6.0%, respectively.
This is particularly impressive when you consider just how bad the
retail environment has been. The U.S. Commerce Department recently
reported that U.S. retail sales fell -2.7% in December on top of a -2.1%
fall in November -- marking the worst retail shopping season since at least the
'70s.
But a negative retail environment isn't bad news for all retailers. When
the economy slows sharply, consumers don't stop spending entirely but
they do shift their consumption habits. Falling real incomes and
concerns over job security push many to shun more expensive goods and
high-ticket items like cars and expensive jewelry.
This is particularly true in this economic cycle. Most new cars
purchased in the U.S. and other developed countries are bought on credit
-- as the credit markets froze this autumn, banks tightened their
lending standards sharply. The result: U.S. automobile sales plummeted
-36% in December compared to the year-ago period.
And, in many recessions, sales of luxury items hold up surprisingly well
-- wealthier consumers typically aren't hit as hard during economic
contractions. But the recession of 2008 has been far from ordinary.
Strong growth in incomes for workers in the financial services industry
has been a boon to the luxury retailers in recent years; but banks and
brokers were among the hardest hit in the recent contraction, destroying
demand.
Even wealthier consumers are pulling in their horns given the uncertain
environment. These factors help to explain the near -20% decline in
December same-store sales -- sales from locations open more than one
year -- for luxury department store chain Saks (NYSE: SKS) and the near
-28% decline for Neiman Marcus. In terms of same-stores sales
performance among large retailers, these two stores were among the worst
performers in the 2008 holiday shopping season.
But even as consumers cut spending on expensive items and premium
brands, they still need basic apparel, household goods and groceries.
These basic staple items are the province of the discount retailers and
spending at such stores actually tends to accelerate in uncertain
economic times.
Our chart shows same-store sales growth for 35 major retailers that
report data on a monthly basis. The graph also breaks out same-store
sales for the six discounters (not including Wal-Mart) that are part of
this group.
The trends in the chart are clear. Overall retail sales began to
deteriorate after mid-year and that decline accelerated in September and
October at the height of the credit crunch. But as overall sales
declined sharply, sales at discount stores continued to see growth,
albeit at a slower pace.
In a conference call last year, Wal-Mart commented that it actually saw
a shift in its customer base; the credit quality and average income
level of its shoppers appeared to increase. The reason is simple: Some
shoppers who might normally buy their groceries and household goods
elsewhere switched to Wal-Mart to save money.
Relative sales outperformance from the discounters has translated into
strong gains for the stocks of major discount retailers amid the worst
retail environment in decades. On average, the nine discounters in my
table below have rallied more than +20% in 2008, year compared to a
-32% decline for the S&P Retail Index.
With these points in mind, the table below offers a list of some of the
largest and best-positioned discount retailers in the U.S. And in the
text that follows my staff and I profile two of our favorites in the
group...
Important Note: In the remainder of
this article,
Market Advisor
editor Paul Tracy covers some of his favorite discount retail stocks. These picks
featured returns of up to +64.7% in 2008. In order to view the remainder of
this article, you'll need to subscribe to our premium newsletter
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Market Advisor. After you subscribe, you'll receive
immediate access to this full article, as well as our monthly
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the following links to continue.
Good investing!
[http://www.streetauthority.com/includes/editor-profiles-ma.htm]
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