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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.

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

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

    Visit our site:

    http://www.profitconfidential.com/

    Share
  • Retail Stocks: Faring Well Despite Jobs and Housing

    Posted on June 30th, 2011 Profit Confidential No comments

    By George Leong, B.Comm.

    So far, even without strong job growth and with continued weakness in housing, consumers continue to spend, which is helping to drive the economic renewal, albeit sluggishly. This is positive and clearly encouraging once the jobs and housing areas improve. George gives you some examples of the types of retail stocks you may want to consider for your investment portfolio.So far, even without strong job growth and with continued weakness in housing, consumers continue to spend, which is helping to drive the economic renewal, albeit sluggishly. This is positive and clearly encouraging once the jobs and housing areas improve. The Fed realizes this.

    The headline Retail Sales reading for May fell 0.2%, above the estimate of negative 0.7%, but was lower than the downward revised 0.3% in April.

    Excluding the auto portion, Retail Sales increased a slightly better than expected 0.3%, albeit it was lower than the downward revised 0.5% in May.

    On the plus side, consumers are spending, but the lack of consistency is troublesome. And given that gasoline prices are high, it reduces the disposable income consumers have to spend on goods and services. You probably won’t 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 you should 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, examples of these include Wal-Mart Stores, Inc. (NYSE/WMT), Target Corporation (NYSE/TGT), and Costco Wholesale Corporation (NASDAQ/COST).

    Costco reported a 13% jump in its key same-store sales reading in May, above the 11.2% estimate polled by Thomson Reuters. Net sales for May surged 17% 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 $35.02 billion and is estimated to report sales growth of 12.5% and 7.9% 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 19.0% increase in its same-store sales in May, along with an 18.7% year-over-year rise in May net sales. The reading was the 19th straight monthly increase. These numbers are well above the growth metrics for Costco. Consider the comparative sales growth for PriceSmart, which is 16.80% and 7.90%, 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 that consumers are spending on goods and services that are non-essential. These include electronics, appliances, furniture, autos, and other big-ticket items. For a contrarian pick in electronics, take a look at Best Buy Co., Inc. (NYSE/BBY), which has rallied since reporting weak Q1 results.

    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 lines. 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.

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

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

    Visit our site:

    http://www.profitconfidential.com/

    Share
  • Retail Sales: Why They’re Still a Big Sore Spot

    Posted on June 15th, 2011 Profit Confidential No comments

    By George Leong, B.Comm.

    George delves into recent sales readings and why the retail sector is still a major sore spot for the U.S. economy.Stocks surged on June 14 after the release of the May Retail Sales reading. The buying on the news would make you think it was a strong reading; but, in reality, the headline number fell 0.2% in May. Investors apparently were excited that it was not as bad as the negative 0.7% reading. Ex-auto, the reading was better than expected at 0.3%, versus the estimate of 0.2%.

    Now, a closer look shows that both the headline and core reading were well below what was reported in April. The readings actually came up short on some of the estimates.

    I’m not sure why investors would be giddy about a negative reading. Yes, it was better than the consensus, but it still indicated a decline in spending.

    There are some bright spots in retailing, namely the luxury brands such as Tiffany & Co. (NYSE/TIF). I guess the rich are getting richer.

    Yet, overall, I continue to view retail as a cesspool for capital. That is my investment advice.

    Need more proof? Retail sales in the U.S. are estimated to come in at $393.28 billion in May, down from $396.27 billion in March, according to The Financial Forecast Center. But here is the problem. Retail sales are predicted to slide to $362.79 billion by November 2011.

    Then there is the critical durable goods orders report. Are consumers buying non-essential goods and services? These include electronics, appliances, furniture, autos, and other big-ticket items. Spending here generally means that consumers are confident in their situation.

    The uncertainty was clearly reflected in the recent weak Durable Goods reading, which was a disappointment and in my view worrisome. Non-discretionary spending remains a problem. Durable goods orders were disappointing, with a decline of 3.6% in April, lower than the expected decline of 2.0% and down from a 4.4% increase in March. Excluding the transportation element, the negative 1.5% reading was well below the estimated 0.6% increase and down from the 2.5% jump in March.

    In my view, the readings clearly indicate the continued reluctance on the part of consumers to spend on non-essential big-ticket items, which is bearish.

    Overall, I’m disappointed with the Durable Goods results, which in my view continue to indicate weak demand for non-essential goods and services. Again, until we see sustained improvement in jobs and housing, there will likely continue to be problems arising,

    Consider that a key driver of the housing market is jobs. We need jobs and security in order to give buyers confidence to assume a mortgage, so that they don’t worry about losing jobs and missing payments. The jobs market remains sluggish, with unemployment edging higher at 9.1%. And, until we see improvements, I question how confident homebuyers will be.

    At the end of the day, we need to see the willingness to spend without worrying about money. Only under this scenario will there be sustained spending.

    Given the current problems, consumer spending will likely continue to be soft, which will impact the growth of GDP.

    If you are buying retail, stick with the discounters, dollar stores, and big-box operations.

    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/

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  • Consumer Confidence Fading; How Bad Is It?

    Posted on June 3rd, 2011 Profit Confidential No comments

    By George Leong, B.Comm.

    George takes a look at current consumer confidence and the factors behind it, and explains why it's important to the economy and you, the investor.When consumers are cautious, they tend to hold back on any major purchases such as homes, vehicles, furniture, appliances, and travel, to list a few. This will impact spending, GDP growth, and the ability of companies to expand their businesses and hire.

    Consumer Confidence in May was another disappointment with a reading of 60.8, below the estimate of 66.3 and the revised 66.0 in April. The reading was the lowest since October 2010. To give you a better idea of how bad the readings are, economists feel that a reading of 90 indicates a healthy economy, something that has not happened since December 2007 when the recession began. It looks like it will be some time until the confidence reading heads back towards the pre-recession readings of 90. This cannot be good.

    Add in the fact that the U.S. housing market is in a double-dip recession after prices declined to below the lows of 2006 and you’ll understand my concerns going forward.

    To drive the economy, consumers need to spend. We have interest rates at historical lows and quantitative easing. It is working, but not as fast as I would like to see.

    The government can use fiscal policies, but with over $14.0 trillion in national debt and a massive deficit, major spending increases may not be in the cards.

    The Durable Goods Orders reading for April was weak with a 3.6% decline, weaker than the estimate calling for a 2.0% decline and below the 4.4% growth in March. Excluding the transportation element, the decline of 1.5% was also worse than expected.

    These are not readings you can get excited about. There continue to be mixed readings.

    The monthly retail sales numbers are mixed. Of the 24 retailers reported, 60% fell short of estimates, according to Thomson Reuters. The blame was on the higher gasoline prices and higher basic commodity prices in dairy, cotton, and meat. Consumers have a limited budget and, when expenditures rise in some areas, other areas are negatively impacted.

    A strong housing market is important, as homeowners buy new furnishings, including many big-ticket items. This is not happening, as home prices continue to decline, dragged down by continued high foreclosures and short sales (where homes are dumped below the mortgage value).

    Also consider that a key driver of the housing market is the jobs market. We need jobs and security in order to give buyers confidence to assume a mortgage and to prevent them from worrying about job losses and missed payments. The private ADP report was dismal.

    At the end of the day, we need to see confidence and the willingness to spend without worrying about money. Only under this scenario will there be sustained spending and economic growth.

    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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