In Retail, Lower Prices Beckon

Sometimes you have to wonder why some stocks just don't stay down after bad news.

Take FedEx (FDX - commentary - Cramer's Take). Earlier this year, the stock shed about 10% of its value when it forecast worse-than-expected earnings, citing lower volumes and higher fuel costs. It then proceeded to rally 25% from that dismal forecast even as oil went up dramatically and business in the U.S., particularly retail business, got softer and softer!

Now we get pretty much a simple extension of what the company said last near the end of March, and people are acting surprised and furiously dumping the stock.

FedEx cuts to a couple abiding fictions in this market. The first is that all valuations are cheap, so it is OK to buy them. FedEx has long-term growth of 10% and sells at 14 times earnings, but I question both the growth and the multiple as being too high in a world where energy just won't quit. But that brings us to the second fiction: People have been buying this stock with the idea that oil just has to level off somewhere. Considering it didn't, how could anyone be surprised at this news? And the third fiction? The turn in the economy is right around the corner.

I think that every time oil goes up, it postpones the turn because it is such an offset to whatever the Fed and the government does to get things moving again. When you combine tightened consumer credit with higher oil and gas prices and much more expensive food, you aren't going to get an increase in growth, you are going to get a contraction in growth. That FDX could go from $82 to $98, where it was recently, is a sign that there is so much optimism out there that we have cause for concern for any stock that has a consumer spend component, as FDX has.

Last week I went real negative on everything retail except Wal-Mart (WMT - commentary - Cramer's Take), which is in itself dangerous because everyone else likes Wal-Mart, too. I was waiting for the checks to be in the mail before going negative, to take advantage of maximum optimism on top of what looked to be good comps because of a calendar shift.

I reiterate that retail is the single most dangerous group out there next to the financials, and they simply don't make sense as investments right now.

Lower prices beckon.

At the time of publication, Cramer had no positions in stocks mentioned.

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