Trade Shoes for SOX

This column was originally published on RealMoney on July 26 at 1:20 p.m. EDT.

I need you out of shoes and into SOX. That's my takeaway after hearing still one more disappointing report out of the shoe business, Timberland(TMB), which could still go lower even though it has a great balance sheet and a ton of cash.

Yes, the competition in footwear has gotten extreme, just at the point when the competition in SOX -- or semiconductors -- has gotten more benign. I don't mean to belabor the metaphor, but the reason Texas Instruments(TXN) is up and Timberland is down is because one business has shockingly lean inventories -- high-end semis -- and the other has shockingly high end inventories -- high-end shoes and boots. Timberland says it has good control over its inventory. But there is too much shoe inventory overall in the system, especially at the off-price stores.

I see no end to this conundrum other than more price-cutting in the shoe biz -- that includes Nike(NKE), Reebok(RBK), Timberland and Stride Rite(SRR) -- and more steady pricing in semis.

Don't get me wrong, we won't see price increases in semis -- that's not the style of that industry. But I come away shaking my head about how the shoe market, which had been in full bull mode for a couple of years, now seems to be distinctly bearish. That's because of a combination of higher sourcing costs -- that pesky Yuan -- and a bunch of price points that have gotten too high for America's consumers.

Meanwhile, semiconductor pricing is as strong as I can remember it. No wonder Texas Instruments bought back billions of dollars in stock this spring, 7 points ago. With these lean inventories, pricing could be good for the rest of the year.

Out of shoes, into SOX. Now, that makes sense for this market.

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