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  • Retail Stocks: Showing Some Improvement

    Posted on August 16th, 2011 Profit Confidential No comments

    By George Leong, B.Comm.

    We're seeing some improvement in the area of retail and retail stocks. George gives you his investment advice on the types of stocks you may want to look into.

    I must admit the fact that consumers continue to spend despite any strong or sustained job growth and continued weakness in housing is encouraging. With consumer spending accounting for two-thirds of GDP, retail sales will eventually be stronger when the jobs and housing areas improve, albeit it will likely take over a year.

    The headline Retail Sales reading for July increased 0.52%, in line with the consensus estimate, but above the upwardly revised 0.3% in June. It was the biggest increase since March and clearly offers some optimism that the economy may avoid another recession.

    Excluding the auto portion, Retail Sales increased a slightly better than expected 0.5% versus the consensus estimate of 0.2% and above the upward revised 0.2% in June.

    While we still need to see a sustained upward trend, the reading was encouraging. And with oil below $90.00 a barrel, gasoline prices have declined, which will add some disposable income for consumers to spend on goods and services. Of course, consumers are fickle and will continue to search for the best bargains out there.

    At this juncture, I’m selective with retail stocks. My investment advice, my best stock advice, to you would be to stick with the leading discount bellwether retail stocks.

    In the large-cap area, these stocks include Wal-Mart Stores, Inc. (NYSE/WMT), Target Corporation (NYSE/TGT), and Costco Wholesale Corporation (NASDAQ/COST).

    Costco reported a 10% jump in its key same-store sales reading in July following a 14% surge in June. Net sales for July surged 15% year-over-year. The results are consistent and continue to show steady growth; but, for that extra bit of growth, you should look at the smaller discount retail companies.

    Costco, for instance, has a market cap of $31.79 billion and is estimated to report sales growth of 13% and eight percent for the FY11 and FY12, respectively.

    For comparison, take a look at small-cap PriceSmart, Inc. (NASDAQ/PSMT), an operator of 28 warehouse clubs in 11 countries in Central America and the Caribbean. PriceSmart reported a booming 20.9% increase in its same-store sales in July, along with a 23.8% year-over-year rise in July net sales. The reading was the 21st straight monthly increase. These are well above the growth metrics for Costco. Consider the comparative sales growth for PriceSmart, which is 22.3% and 14.2% for the FY11 and FY12, respectively. The growth estimates are probably conservative and could really take off if the expansion continues.

    Another interesting discounter is large-cap Dollar General Corporation (NYSE/DG), which operates a staggering 9,300 stores across 35 states. Dollar General has reasonable valuation, trading at 12.26X FY13 earnings per share and a price/earnings growth ratio of 0.80. The stock has above-average price appreciation potential for investors.

    When the housing and jobs areas pick up, I expect spending to increase quicker, especially on the non-essential Durable Goods.

    My favorite in the retail space continues to be the discounters and big-box stores. The big-box stores are now selling a broad range of electronics and are adding to their product line. This will offer consumers a one-stop place for shopping and make more money for these companies.

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  • My Best Stock Advice on the Retail Sector

    Posted on July 29th, 2011 Profit Confidential No comments

    By George Leong, B.Comm.

    The upward move of the retail sector is impressive given the constraints. George senses that retailers are just more efficient as far as production and inventory control and have not been caught with excess inventory as was the case in the past. This is not to say that the retail sector is the place to make money, but there are some winners and market leaders.

    Consumer spending drives the economy and gross domestic product (GDP) growth, accounting for about 70% of GDP in the U.S.

    The retail sector has been rebounding in spite of the lack of jobs and the declining home prices. The S&P Retail Index (RLX) is trading near its 52-week high, up 37% from the 52-week low. The RLX recently traded at its highest level since the index was created in 2007.

    The upward move of the retail sector is impressive given the constraints. I sense that retailers are just more efficient as far as production and inventory control and have not been caught with excess inventory as was the case in the past. This is not to say that the retail sector is the place to make money, but there are some winners and market leaders.

    The headline Retail Sales reading for June increased 0.1%, slightly above the estimate calling for a decline of 0.2% and up from an upwardly revised negative 0.1% in April. Excluding the auto portion, Retail Sales were flat and in line with estimates.

    On the plus side, consumers are spending, but the lack of consistency is troublesome. And, given that gasoline prices are high, this reduces the disposable income that consumers have to spend on goods and services. You may not buy that DVD player you had been eyeing. This may not sound like a big deal, but think about it this way. Not buying that DVD player has a trickle-down effect as far as spending and negatively impacts total spending.

    But this is not to say that you must avoid retail. The key for success is selective picking.

    My investment advice and best stock advice to you would be to stick with the leading discount bellwether retail stocks.

    In the large-cap area, these include Wal-Mart Stores, Inc. (NYSE/WMT), Target Corporation (NYSE/TGT), and Costco Wholesale Corporation (NASDAQ/COST).

    Costco reported a 14% jump in its key same-store sales reading in June, well above estimates. Net sales for June surged 18% year-over-year. The results are consistent and continue to show steady growth, but, for that extra margin of growth, you should look at the smaller discount retail companies.

    Costco, for instance, has a market cap of $34.55 billion and is estimated to report sales growth of 12.8% and 8.1% for the FY11 and FY12, respectively.

    For comparison, take a look at small-cap PriceSmart, Inc. (NASDAQ/PSMT; market cap; $1.73 billion), an operator of 28 warehouse clubs in 11 countries in Central America and the Caribbean. PriceSmart reported a booming 19.7% increase in its same-store sales in June, along with a 21.1% year-over-year rise in June net sales. These are well above the growth metrics for Costco. Consider the comparative sales growth for PriceSmart, which are 22.3% and 14.2%, for the FY11 and FY12, respectively. The growth estimates are probably conservative and could really take off if the expansion continues.

    Another interesting discounter is large-cap Dollar General Corporation (NYSE/DG), which operates a staggering 9,300 stores across 35 states. Dollar has reasonable valuation and above-average price appreciation potential for investors.

    And when housing picks up, I expect spending to continue to increase, especially on non-essential goods and services reflected by Durable Goods.

    It does appear that a reversal is occurring in retailing. The key is to look for same-store sales growth in retailers that sell non-essential goods. Increases here could mean consumers are spending on goods and services that are non-essential. These include electronics, appliances, furniture, autos, and other big-ticket items.

    My favorites in the retail space continue to be the discounters and big-box stores. The big-box stores are now selling a broad range of electronics and are adding to their product line. This will offer consumers a one-stop place for shopping and make more money for these companies.

    Retire on This One Hot Stock!

    This stock is up 232% since we first picked it. Our expert analysts say it will go up another 100% in the next 12 months! Our top 19 stock picks were up an average of 173.57% in 2010 (not a misprint). See where we are making money in 2011 and get our combined 100 years of investing experience working for you starting today.

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  • Consumer Spending: Why Hibernation Is Setting in Again

    Posted on July 18th, 2011 Profit Confidential No comments

    By Michael Lombardi, MBA

    Why consumer confidence amongst Americans is nose-diving.Consumer confidence amongst Americans is nose-diving.

    An important report just released by Thomson Reuters/University of Michiganknown as a preliminary index of consumer sentiment decreased in July to the lowest level since March 2009. The report is startling for several reasons, but this should not be news for my PROFIT CONFIDENTIAL readers.

    If we go back to March of 2009, we remember it as the month the stock market hit a 12-year low. The Dow Jones Industrial Average fell from 14,164 in October of 2007 to 6,440 in March of 2009—a decline of 55%. People were running scared. It was the bottom of the credit freeze.

    But why are consumers, who make up 70% of American GDP, so worried again? Several factors are coming into play.

    Job growth isn’t happening. This is the sixth year that house prices will fall in the U.S.  People don’t understand theWashingtonshenanigans concerning the national debt ceiling crisis. Is it any wonder that the Commerce Department reported that Friday sales at U.S.retailers stagnated in June?

    If American consumers are going back into hibernation now, what will they do when inflation really spikes, interest rates rise to offset rapid inflation, and housing prices fall further as rates for mortgages rise?

    Rightfully so, the American consumer is starting to realize that the future really doesn’t look that bright for the economy.

    Michael’s Personal Notes:

    I’ve been warning about inflation picking up steam in 2011. Government statistics are starting to provide evidence of the heated inflation.

    According to a Labor Department report from Friday, consumer prices in the U.S., excluding the volatile food and energy items, climbed 0.3% in June after rising 0.3% in May—the biggest back-to-back gain in three years.

    Overall prices rose 3.6% for the 12-month period ended June 30, 2011.

    Inflation running at 3.6% and the Fed not raising short-term interest rates? Think about this for a moment. If you buy a 10-year U.S. Treasury, you make three percent on your money. But with inflation at 3.6%, you are actually losing the purchasing value of your money, while paying income tax on your three-percent return.

    Something’s not right in the marketplace. But, as always, a regression to the mean will adjust the imbalance. Long-term interest rates will rise.

    Where the Market Stands; Where it’s Headed:

    The Dow Jones Industrial Average opens this morning up 7.8% for 2011. The more time goes by in 2011, the more bearish I turn on the economy. There has been no real effort by politicians to slash spending, the Fed stands ready to unleash QE3 if the economy falters…the long-term effects of both are inflation and insurmountable sovereign debt problems.

    But, in the meantime, in the immediate term, stocks can—and I believe they will—continue to move higher.

    What He Said:

    “Over-built, over-speculated, over-financed and overdone. This is the Florida real estate market right now. For those looking to buy for personal use or investment, hold off! The best deals are yet to come. I continue with my prediction that the hard landing in the U.S.housing market, which is now affecting lenders, will have significant negative effects on the U.S.economy.” Michael Lombardi in PROFIT CONFIDENTIAL, April 3, 2007, Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

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  • Why an Economic Slowdown Is Inevitable this Year

    Posted on June 29th, 2011 Profit Confidential No comments

    By Michael Lombardi, MBA

    If we split the economy into consumers and businesses, both groups are pointing to a slowdown in the economic expansion that started in 2009. Michael breaks it down for you.If we split the economy into consumers and businesses, both groups are pointing to a slowdown in the economic expansion that started in 2009.

    Let’s start with the American consumer…

    Consumer confidence in the U.S. unexpectedly fell this June to a seven-month low and, according to report yesterday from the U.S. Commerce Department, consumer spending stagnated in May.

    The American consumer savings rate rose to five percent in May from 4.9% in April—an indication that consumers are continuing to focus on saving as opposed to spending. Back in the boom days of 2006 and 2007, the savings rate in America was zero.

    Consumers are concerned, the unemployment rate remains high, and low-interest rates have failed to get American consumers spending again.

    Turning to businesses…

    According to a survey by Bloomberg, analysts are expecting the S&P 500 companies to report a 10% increase in revenue this year.

    When the recession hit hard in 2008, companies cut payrolls, and sold off or closed unprofitable divisions—they quickly cut expenses. But with the trimming of expenses all but done, companies have no other option to increase profits but to augment sales. With 70% of U.S. GDP based on consumer spending, increasing sales is easier said than done.

    American companies are sitting on a record amount of cash. To increase profits, companies will need to reinvest that cash into their businesses or make acquisitions to generate growth. But given that most CEOs are still worried about the economy—the fear surrounding that dreaded double-dip recession—companies are preferring to sit on their cash as opposed to reinvesting it.

    Given the scenario I’ve just painted above, how can the economy not slow down in 2011?

    Michael’s Personal Notes:

    I’ve been writing, begging my readers to avoid U.S. Treasuries. And, yesterday, investors found out quickly that it doesn’t take much for the price of U.S. Treasuries to tumble.

    Wednesday, the yield on the 5-year Treasury rose to its highest level since January, as demand at a $35.0-billion auction of 5-year notes fell to its lowest level since June 2010.

    Sure, the news reports will tell us that it looks like Greece will pull through its economic crisis, reducing investor demand for the security of U.S. Treasuries, but let’s call a spade a spade. Why would investors buy securities issued by a country that is technically bankrupt, where the securities yield less than inflation, where the currency in which the securities are issued is printed as needed.

    Where the Market Stands; Where it’s Headed:

    After a devastating Phase I bear market brought stocks to their knees in March of 2009 (with the Dow Jones Industrial Average hitting a 12-year low of 6,400), Phase II of the bear market rally started on March 9, 2009.

    Phase II of the bear market brought the Dow Jones Industrial Average to a post-crash intraday high of 12,876 on May 2. 2011. Subsequently, with too much optimism in the air, the Dow Jones fell to 11,900 on June 15, 2011. Since then, the stock market has been recovering, with the Dow Jones opening this morning at 12,188.

    I believe that Phase II of the bear market, the rally, still has life left in it. As per my lead article today, there is no doubt that the U.S. economy is stagnating—but the bear’s job of luring more investors back into stocks is not done yet.

    What He Said:

    “As investors, we need to take a serious look at our investment portfolios and ask, ‘How will my investments be affected by an American-grown recession?’ You should take what precautionary steps you can right now to protect yourself from a recession in 2007. Maybe you need to cut your own spending or maybe you need to sell some stocks that will take a beating during a recession. You know what tidying up you need to do. Don’t procrastinate…get to it now. And please remember: recessions can happen quickly, stock markets don’t go up during recessions, and the longer the boom before the recession, the longer the recession. Just based on my last point, we have plenty to worry about in 2007.” Michael Lombardi in PROFIT CONFIDENTIAL, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.

    Retire on This One Hot Stock!

    This stock is up 232% since we first picked it. Our expert analysts say it will go up another 100% in the next 12 months! Our top 19 stock picks were up an average of 173.57% in 2010 (not a misprint). See where we are making money in 2011 and get our combined 100 years of investing experience working for you starting today.

    Get your FREE report on our top stock pick immediately here.

    http://www.profitconfidential.com/pcabs/

    Visit our site:

    http://www.profitconfidential.com/

    Share
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