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NEW YORK ( RealMoney) -- Yesterday was pretty much a perfect Thanksgiving here at Casa Melvin. We had way too much food, followed by entirely too much pie, all washed down with mildly immoderate amounts of wine.
There were some great football games on, capped off by a Ravens win over the surprising 49ers. We had a houseful of people throughout the day, and conversations ran the gamut from books to movies to politics and of course markets and the economy. One topic that came up every commercial break, for obvious reasons, was the early opening of stores for Black Friday.
|No matter how many people head out to fight for bargains on Black Friday, retail stocks are not a buy.|
The initial reaction is to blame the greedy stores for what I view as one of the most commercial, ridiculous traditions that has developed over the years. The early openings that have now moved back to Thanksgiving night are really our fault. If we were not standing in line at midnight, the stores probably would give up on the idea of opening for these massive sales.One guest pointed out that the enormous demand of Black Friday is really a reflection of the economy. Tiffany's (TIF) did not open at the crack of dawn this morning. Nordstrom's (JWM) Web site promotes a sale on some apparel items, but there are no Black Friday banners announcing early openings. The action swirling around Black Friday is in the mid-range stores and discount retailers. My wife told me that the Wal-Mart (WMT) near her bank was jammed to the point of insanity. Target (TGT) ads with the really creepy shopping lady dominated the advertising during the games yesterday. People were camping at Best Buy (BBY) locations, hoping to grab some of the heavily discounted door-busters that the electronics retailer has been advertising over the past week. I read this morning that 152 million people were expected to hit the stores for Black Friday this year, a 10% improvement from last year. Some of the analysts and pundits are taking this to mean there is going to be a strong holiday season for retailers. I do not believe this will come to pass. We may see some revenue upticks, but the amount of discounting I have seen already this year leads me to suspect that the profits are not going to improve much year over year. My highly informal survey of people I know who actually are infected with the mental condition that drives them to the stores today tell me they have lists of specific sale items they want. They are shopping for deals and bargains only. That does not bode well for margins and bottom-line profits for retailers this holiday season. I am not by any stretch of the imagination a shopper, much less a combat shopper who would head out today. I do all my holiday shopping online, and even there I am noticing a trend toward early discounting. I once bought a gift for my daughter form Urban Outfitters (URBN) online. From time to time the company has sent an email advertisement or coupon, but in the last month I am getting emails pretty much daily, promoting heavily reduced prices from the trendy retailer. My wife used my computer to by some stuff at Michaels, the arts and crafts store. I am getting a flood of emails from Michaels with deep discount price offers. The type of early discount pricing I am seeing is not telling a story of a strong recovery for retailers. I hear the analysts talking about some of the economic data points such as personal income, consumer credit and even GDP as reasons to expect consumer improvement. I have said all along that only two data points in the U.S. really matter as a measure of consumer health and confidence. Until job creation improves and real estate stabilizes, consumers who are not Tiffany's customers are going to be reluctant shoppers. They are cutting back and searching for deals, and those behaviors are not the feedstock for a retail rally. Retailers have shown amazing resiliency over the past two years. They have slashed budgets, reduced inventories and laid off people to maintain profits. The retail stock indices have rallied back to 2007 levels as investors note that these lean and mean retailers that survived the crisis will do well when the economy gains strength. The problem is that although things have gotten better since 2008, they are still not good. I see no reason to pay up for any of the retailers at these levels. I prefer to buy retailers when they trade at single-digit multiples of earnings and below book value. That recipe has worked very well over the past two decades. Right now, the only retailer trading at that level is Office Max (OMX). The group is not cheap, and no matter how many people head out to fight for bargains today, retailers are not a buy. Now I am off to have some leftover white potato pie for breakfast, and most of all, avoid the malls and shopping centers. At the time of publication, Melvin had no positions in stocks mentioned.
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