|
How to Play
Retail as Consumer Tightens Belt
Billy Fisher
08/05/08 - 08:59 AM EDT
Retail-focused ETFs have declined less than funds in many
other sectors of the market, but whether they can continue
outperforming is subject to debate.
Year-to-date, the PowerShares Dynamic Retail FundPMR, the
Retail HOLDRs FundRTH and the SPDR S&P Retail FundXRT are
down 4.5%, 6.0% and 11.3%, respectively. These funds have
held up well compared with the S&P 500, which is down 13.7%
so far this year.
Now, some market observers are saying the retail sector may
be the next to crack.
Ken Perkins, president of Retail
Metrics, sees macroeconomic conditions as being a
major challenge for the retail sector.
"Certainly the next year or so is going to be dicey, to say
the least," he says. "Some of the weaker players will be
shaken out. Once the price of gas went above $4 a gallon, it
really began to impact consumer psychology."
Perkins cites a tight job market as being a potential drag
on the retail sector.
"We see job losses continuing through the rest of the year,"
he says. "It could be very tough sledding over the next year
or so."
Changing Demographics
Potential changes in spending habits could also prove to be
an obstacle for retailers in the not too distant future.
"The industry is going to be really challenged for the next
few years," says Keith
Springer, president of Capital Financial Advisory Services.
"We are turning from a nation of spenders to a nation of
savers."
Springer believes that changing demographics could lead to a
decline in consumer spending.
"The last wave of Baby Boomers is about 48 years old now,"
he says. "As people approach retirement, they tend to cut
back on spending. By that point, a lot of their necessary
spending is declining."
Despite a negative sentiment toward the retail sector,
Springer does recommend that individual investors consider
the use of an ETF, such as the Retail HOLDRs, if they are of
the belief that the sector is due for a pop.
The Retail HOLDRs Fund's top holdings include Wal-Mart
StoresWMT, Home DepotHD, TargetTGT and WalgreenWG.
"RTH would be the best way to invest in retail," Springer
says. "The risk in not being properly diversified is too
high. You can be right on a sector, but wrong on a stock."
Value Play or Value Trap?
Steven Rogé, co-portfolio manager for the Rogé Partners
FundROGEX, believes that some of the hurdles that face
retailers may already be taken into account.
"The stocks have come down a lot over the past year, so I
think that the headwinds that they face have been priced in
to some extent," he says. "With reasonable valuations, it
certainly wouldn't hurt to dip your toe back into the
space."
For investors looking to add retail positions but who are
not sold on these ETFs, Rogé likes the clothing retailer
American Eagle OutfittersAEO. Last month, the company
maintained its second-quarter guidance.
"American Eagle is our favorite name in the retail space
right now," he said. "They are trading at a reasonable
valuation, have an astute management team and have a very
high margin business for a
retailer."
Another apparel retailer that has caught Rogé's eye is
GapGPS, which recently reported a 7% decrease in its
comparable store sales for the month of June.
"Purely on a valuation basis, Gap looks pretty interesting,"
he said.
Perkins also points to a couple of clothing retailers as
being among the best positioned companies in the sector. The
names that he finds to be most appealing in retail are
AeropostaleARO and Urban OutfittersURBN.
"Right now, it is really a stock-picker's market," he says
of his hesitancy to embrace the ETFs.
Keith Springer is Registered Investment Advisor and
President of Capital Financial Advisory Services, providing
Wealth Management, advanced Retirement Planning and Mortgage
Consulting Services. For more information, please contact
Keith Springer at 916-925-8900 or Keith@KeithSpringer.com
|
|
