Nowhere is Mr. Market's giddy optimism more evident than the recent surge in the shares of ailing retailers. I don't believe that investors need to avoid the broad retail sector altogether, but unless your to-do list includes getting taken to the cleaners, you’d better be a seriously smart shopper.
Massive mark-ups in the low-quality aisle
That the most beleaguered of the retail-related companies have rallied the farthest in the past months is no surprise: Positive market momentum is often strongest at the backs of the recently worst performing. Of course, as Foolish investors, we're concerned with company fundamentals rather than herd behavior.
On that note, housing market news suggests that there may be far less disposable income heading to the mall than is expected by the I-spy-green-shoots investor marching band. According to The New York Times, from November to February, the number of prime borrowers suffering some stage of foreclosure increased by roughly 473,000 to over 1.5 million, compared to 1.65 million in the subprime category. Mark Zandi, chief economist at Moody's Economy.com, sees that trend "intensifying" due to widespread job loss. When the most credit-worthy consumers can't keep their homes, they're probably not racing out for a closet load of the latest apparel.
With that in mind, I tapped the intelligence of the Motley Fool CAPS investing community to see which consumer discretionary stocks look like a pass, and which may offer staying power through an extended consumer crunch.
Pricey and threadbare
Company
Industry
CAPS Rating (5 max)
% Above 12-Month Low
4-Week Price Change
Dillard's (NYSE: DDS)
Retail
*
303.6%
30.5%
Talbots (NYSE: TLB)
Retail
*
172.3%
32.2%
Tuesday Morning (Nasdaq: TUES)
Retail
**
672.5%
18.3%
Data from Motley Fool CAPS as of 5/27.
All-season buys
Company
Industry
CAPS Rating (5 max)
% Above 12-Month Low
4-Week Price Change Continued... |