Does the Grim Look in Retail Spell Trouble for the Consumer?
The S&P 500 ETF (SPY) - Get Report slipped 1% in Monday's trading session. Part of the decline can be blamed on the SPDR S&P Retail ETF (XRT) - Get Report , which fell 2.1% on the day. Earnings from Gap (GPS) - Get Report after the close didn't help, sending the stock plunging. Gap stock declined by 2.8% during the regular trading session before falling another 5% in after-hours trading.
"There's something very serious going on in the department store space," Karen Finerman, president of Metropolitan Capital Advisors, said on CNBC's "Fast Money" TV show. Online sales and speciality stores -- highlighted by Michael Kors (KORS) , Ralph Lauren (RL) - Get Report , Kate Spade (KATE) and Coach COH -- seem to be doing fine, while department stores, like Macy's (M) - Get Report and Nordstrom (JWN) - Get Report are struggling.
Macy's has a great management team, but foreign exchange rates and tourism continue to weigh on the department store juggernaut, she acknowledged. Investors will get a full picture soon enough, with Macy's reporting earnings on Wednesday and Nordstrom reporting on Thursday.
Pete Najarian, co-founder of optionmonster.com and trademonster.com, said he likes Nordstrom, which continues to do well with its online sales. Unfortunately, that seems to be the only strong source of momentum for the company.
The lack of spending at traditional brick-and-mortar locations is not an indictment on consumer spending, according to Tim Seymour, managing partner of Triogem Asset Management. Consumer spending remains strong, but through different avenues than in prior years.
Look at footwear sales for example. Nike (NKE) - Get Report is relying more on a direct-to-consumer business model, and the company is doing phenomenally well. Foot Locker (FL) - Get Report on the other hand, is struggling, despite strong footwear sales overall, because consumers are bypassing the middleman, Seymour explained.
If that's the case, why don't investors just stick with the winners? asked Steve Grasso, director of institutional sales at Stuart Frankel. Even though names like Amazon (AMZN) - Get Report , Nike and Under Armour (UA) - Get Report have posted huge rallies on the year, the stocks should continue to go higher as business remains strong.
Ari Wald, head of technical analysis at Oppenheimer & Co., is also looking for stocks to buy. He likes Phillips 66 (PSX) - Get Report , Salesforce.com (CRM) - Get Report and Delta Air Lines (DAL) - Get Report - all three of which have bullish momentum.
As for the broader market, Wald said the recent pullback in the S&P 500 is pretty typical for this time of year. So long as the index stays above its 200-day moving average near 2,060, stocks should continue to rally into the year's end.
So what else should investors buy headed into the holidays? Najarian is choosing TJX Companies (TJX) - Get Report . The company's HomeGoods store has strong momentum, as consumers continue to decorate and redesign their homes.
Grasso suggests keeping it simple and stick to the stocks that are doing well, like Home Depot (HD) - Get Report and McDonald's (MCD) - Get Report . Finerman likes Michael Kors.
Seymour said to stay long the stocks that have sales momentum in their key products, citing Apple (AAPL) - Get Report as the perfect example.
One analyst thinks that company can grow its market cap to a whopping $1 trillion in 2016. Currently, Apple has a market cap of $675 billion. Dan Ives, managing director at FBR Capital Markets, maintains a buy rating and $175 price target on the stock.
However, in order for shares to climb to that level , Ives believes a few things will play a big role. First, "China needs to stay white-hot for Apple to go higher," he said. The country could be a $100 billion market in three years, and is only 12% penetrated by Apple right now. Second, a video streaming service needs to be announced and Apple needs to start making deals for content.
While these two catalysts will play the largest role in the intermediate-term, Ives is also looking for Apple to make progress in its electric car product, dubbed "Project Titan."
"I'm on board with him," Najarian said. The stock looks likely to break out to the upside as the company focuses on both its core products and new growth markets.
Finerman is bullish on the company's new iPad, which goes on sale later this week. Grasso said to stay long the stock.
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