Don't Invest in Retail Before Reading This

Welcome to back-to-school season—for Main Street and Wall Street.

This year, the typical American family with school aged children is expected to spend $634.78 on back-to-school shopping. Most of that will go to apparel, accessories and electronics. However, this is down from last year, when American families spent an average $689—a record. So Americans are clearly more cost conscious than ever, and this is forcing retailers to get creative. Then again, simply flipping on the television or browsing the internet could tell you as much—as retail giants Target Corp. (TGT), Wal-Mart Stores Inc. (WMT), Kohl’s Corp. (KSS) and others battle it out in the advertising arena.

Beyond seasonal trends, the U.S. consumer continues to make steady progress. Last week’s report from the Commerce Department revealed that retail sales rose 0.2% in July—the fourth month in a row. Excluding vehicle sales, retail sales actually advanced 0.5%. In the past year, retail sales have risen 5.4%.

Consumers are definitely out and about spending, but the spending patterns have been sporadic. While consumer have more money in their pockets, they just cannot make up their minds on where to spend it—whether it’s on cars, home improvement materials, electronics, clothing or furniture.

So while there are still plenty of opportunities in investing in retail, stock pickers need to be smart in following the money.

Case in point is Wal-Mart Inc. (WMT), which I covered in a recent Stock of the Day feature. While Wal-Mart is still king of rock bottom prices, this big box retailer is getting slammed by the payroll tax increases. Company management recently lowered its full-year earnings guidance to a range of $5.10 to $5.30 per share, well below the Street view. So this Conservatively-ranked stock has fallen from grace over the past few months and is now a D-ranked sell.

Meanwhile, the past few days have revealed some unique buying opportunities, one of which is Best Buy Co. (BBY). As I highlighted in a recent Stock of the Day, 2013 has represented a turning point for the blue and yellow electronics retailer. Just yesterday shares surged to a new high after Best Buy positively trounced earnings expectations for the second quarter. According to management, the company’s new Best Buy mobile standalone stores helped drive solid domestic sales. So after spending months down at in sell territory, BBY is now a B-ranked buy.

Wal-Mart and Best Buy are just two examples (believe me, there are plenty more) of how quickly the tides can change in retail. So if you’re looking to buy into the American consumer, you’ll need to be quick on your feet. As always, a great place to start would be my PortfolioGrader tool, where I assign letter grades to more than 5,000 stocks and highlight the best stocks by sector, fundamentals, and volatility ranking.

In fact, I’ve used Portfolio Grader to get you started. Below I’ve listed five top-ranked retailers that are good to buy on dips and five that you’ll want to unload if you’re a current shareholder.

Five Retailers To Buy

Ticker Company Quantitative Grade Fundamental Grade Total Grade
GME GameStop Corp. A C A
HD The Home Depot Inc. B B B
KMX CarMax Inc. B B B
SPLS Staples Inc. A C B
WSM Williams-Sonoma Inc. A B B

Five Retailers To Sell

Ticker Company Quantitative Grade Fundamental Grade Total Grade
DKS Dick’s Sporting Goods Inc. D C D
DG Dollar General Corp. F C D
SHLD Sears Holdings Corp. (SHLD) F D F
TGT Target Corp. (TGT) D C D


Louis Navellier

Louis Navellier

More Louis Navellier



RSS Feed

Little Book

InvestorPlace Network