Death of consumer greatly exaggerated
Posted
Feb 13 2008, 05:17 PM
by
Robert Walberg
Rating:
To paraphrase Mark Twain, the report of the American consumers' death has been greatly exaggerated.
As evidenced by Wednesday's retail sales report for the month of January, which showed a gain of 0.3%, we're all out there spending like usual despite the high price of gasoline, the credit crunch and the fear of recession. Given that consumer spending accounts for more than 70% of GDP growth, the data were a strong sign that maybe, just maybe, all this recession talk is much ado about nothing.
Now I don't want to put too much stock into one piece of data, especially given that the month of January now benefits from all the gift cards given at the holidays. Spending that used to be recorded in December now gets registered in January (or later when the cards are used). Nevertheless, the data seem to suggest that even under the stress of current economic conditions, consumers will fork over their money for a new shirt, a pair of pants or yet another product from Apple.
That's good news for many of the apparel and general retailers that were hit hard late last year amid concern that a frightened consumer would rein in spending and lead the economy into recession. It might seem odd that the retail stocks didn't perform better in Wednesday's trading given the surprising strength of the data, but many of these stocks -- bebe stores, Target, Chico's FAS, JC Penney -- have run up nicely over the past several sessions and traders appeared to use the report as an excuse to take some short-term profits.
Unfortunately, the data still show pockets of weakness -- especially in those segments of retail tied to the housing market such as appliances, home improvement and even electronics. In other words it still might be a little early to start bargain hunting in Lowes, Home Depot or Best Buy. But even here an argument can be made that the recent activity by the Fed to dramatically cut interest rates will spark a sooner-than-expected turnaround in real estate sales, which in turn would trigger some positive earnings surprises out of this left-for-dead retail group.
If nothing else, the retail sales report proved once again that the American consumer is amazingly resilient and that betting against this country's willingness to spend money -- even that money it doesn't yet have -- is never a good idea. Consequently, now is a good time for patient investors to do some select buying in the beaten up retailing sector. I recently added bebe stores to my Strategy Lab portfolio.
Other names to consider are Chico's, Dick's Sporting Goods, Coach and Nordstrom. All are well-managed companies, with strong balance sheets and loyal customers. Soft comps will merely magnify the benefit of any additional positive strength in retail sales going forward.
