Wednesday, July 2, 2008

3 Musketeers of 'Pooring of America' Retail

We've discussed all these names in the past [Dec 16: Target Shoppers Turning into Walmart Shoppers] - the 3 Musketeers of the weakening US consumer - Walmart (WMT), Big Lots (BIG), and Costco (COST), but it is helpful to review them after the destruction that has just occurred in the retail space - and see how well they held up. Total anecdotal story - I've never been to a Big Lots but I drove by one in the middle of the day, on a weekday 2 weeks ago and every (I mean every) parking spot was taken. During the workday - when most retailers are nearly empty. That opened my eyes.

In January this space was literally obliterated as it dawned on NYC traders that the rest of America doesn't make $400-$600K+ a year, and that the economy was weakening. I posted an entry showing a chart of almost every major subsector in retail and how 1 chart stood among all the rest - Walmart (WMT) [Jan 15: Will There Be Anywhere Left to Shop in 2010?]

Things are looking quite similar now, but instead of showing you 15 charts that look identical I'll just pick JCPenney (JCP) randomly as it is representative. By seeing this, you can compare to what the 3 Muskateers are doing. All charts will show the three 2008 corrections (January, March, and June) As I've written - retail will be the next financial - actually it has ALREADY BEEN the next financial - but it will continue to be. The consumer won't be 'recovering' anytime soon - this rebate check is hiding a lot of the reality. As the JCP chart - these stocks are lovely shorts on every short covering PLUS "a recovery is not far off fairy tale" rally. So we'll get another one of those soon enough, and it will create a fantastic shorting opportunity - again.

So as opposed to the 90% of retail charts that look identical to JCP, if you did not know better - you would barely realize there is a correction when you look at the 3 Musketeers. But to be in these stocks you'd have to realize the American consumer is fleeing his normal shops (moving downstream) and that indeed the economy is poor - unlike what you'd hear from various government officials and their shoddy reports. Charts don't lie - people do. See below.

I've debated adding any of these 3 over the past few months (I'd probably choose Big Lots at this point if I added here) - part of the barbell strategy (i.e. have things completely outside the "global growth" part of the portfolio) And if we do get that type of "sector rotation" that usually comes every so often - it might soon be time for these to shine further (although their absolute strength in market adversity is shine enough for me) Tough sector (the tide is definitely NOT rising) - but as a very shy financial TV pundit likes to say "there is always a bull market somewhere".

No positions

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