The Five-Day Forecast: Home Depot vs. Lowe's

It's a fairly light economic calendar for the week ahead, so let's look at some upcoming earnings reports.

Taking The Pulse of Retailers

You can expect lots of volatility when retailers deliver first-quarter results in coming days. As the accompanying table shows, retailers such as Gamestop (GME - commentary - Cramer's Take), Aeropostale (ARO - commentary - Cramer's Take), Foot Locker (FL - commentary - Cramer's Take), BJ's Wholesale (BJS - commentary - Cramer's Take)and Talbot's (TLB - commentary - Cramer's Take) are set for huge year-over-year profit gains.

Looking at those names, no clear themes emerge. Clearly, the discounters are making hay right now, but sales trends are also holding up well in other retail categories.

However, investors need be wary of debt-laden retailers during economic slowdowns. For example, Cost Plus (CPWM - commentary - Cramer's Take), which is set to report on Wednesday, May 21 is buckling under a rising debt load. The home furnishings retailer is on track for its third straight year of losses and will need to either raise lots of cash (at distressed prices), or follow fellow retailer Bombay into bankruptcy.

It's also worth noting on this table that retailers aren't especially cheap right now, as you would expect to be the case during the economic slowdown. Of course, their fortunes will be temporarily boosted by the tax rebate checks, but much of that money is likely to be earmarked for credit card debt paydowns. When I see retailers sporting single-digit P/E multiples, I'll be a lot more excited about these names.

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David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.