Cramer: State of the Market, Part III
This is the third of a four-part piece about what groups are working as we begin to wind down 2009. Be sure to read the first and second parts. The series originally appeared Tuesday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.
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NEW YORK (
) --
Group 4: Retail
. This much-maligned group has to deal with the endless "no back-to-school season" stories. At last we are back to school so maybe those will die out!
We annualized some of the toughest compares imaginable -- numbers inflated by an early Labor Day, big stimulus checks and pre-
Lehman Brothers
employment tables -- and we came within low single-digit comp numbers on many of them -- and I am not even going into the
Aeropostale
(ARO)
world.
Retail: Winners and Losers
I know that there's a perception that the only companies that have really done well are the discounters --
TJX
(TJX) - Get Report
,
Ross Stores
(ROST) - Get Report
,
Family Dollar
(FDO)
,
Big Lots
(BIG) - Get Report
and so forth. But there's not enough truth there though.
While TJX and Ross have done well, they have feasted on the woes of other retailers with too much inventory. There's not a lot of inventory in the pipe, so I wager that they are peaking. The true trade-downers, Big Lots and Family Dollar -- seem to have peaked already.
What I think needs to be refuted, and where I think the onus is on the bears to come through, is the unmitigated strength in the charts -- remember the presage underlying strength down the road -- in discretionary plays like
Tiffany
(TIF) - Get Report
,
Capital One
(COH)
,
Nordstrom's
(JWN) - Get Report
,
Williams-Sonoma
(WSM) - Get Report
and
Polo Ralph Lauren
(RL) - Get Report
.
You don't need to go to any of those if you are really struggling. The one that is most notable is Williams-Sonoma, a high-end housewares company that you go to when you are feeling rich, not poor, as anyone who has shopped there and seen those prices knows all too well.
The amazing strength in
Kohl's
(KSS) - Get Report
takes my breath away. That's a good operator, not a great one, and it is doing as well as it was last year.
The Gap
is doing better, which says something. We just saw early strength in pricey
Dick's Sporting Goods
(DKS) - Get Report
and some big insider buying -- first time -- in
Cabela's
(CAB)
, a totally discretionary hunting store that you have to go miles to get to.
This past week we saw some strength in the chart of
Best Buy
(BBY) - Get Report
and the actual business of
Costco
(COST) - Get Report
. Both are viewed as playgrounds of the wealthy, even as Costco is a playground for everyone.
I also see strength in apparel and store companies like
Jones
(JNY)
and
VF Corp.
that have lean inventories, so no markdowns for Christmas. That is something that will soon replace back-to-school season stories in the coming tales of woe. I feel like penning a few right now to show you how easy they are to dash off.
You have to admit that the panoply of retail doing well is surprising given the jobless recovery and the lack of real stimulus year over year. This is an untold bull market story that continues to be framed as if it were bearish. It is beyond me how people can be so wrong or are allowed to be so wrong.
We keep expecting these numbers to be bad because we are used to consumers spending on credit and we know they aren't borrowing as much as they were. But we also know that defaults have peaked. We know it from monthly numbers but we also know it from the stocks, which confirm the positive trends at
Target
(TGT) - Get Report
,
Discover Financial
(DFS) - Get Report
, Capital One and
American Express
(AXP) - Get Report
.
Here I have to admit to being astonished at the strength. I just don't get it given the jobless rate. Where the heck is the money
and the fortitude
coming from? Beats me. But it is obvious and it is strong.
The outliers here,
Lowe's
(LOW) - Get Report
and
Sears
(SHLD)
, are getting way too much attention in my book, especially because
Home Depot
(HD) - Get Report
is kicking their butts.
Check out other recent takes on retail by Marek Fuchs and Tim Melvin.
Group 5: Small business
. We have heard over and over again about how this cohort's been demolished by the recession and before that the garden-variety recession. I monitor it in several ways: temporary employment, payroll companies and office supply stores.
Manpower
(MAN) - Get Report
is on a tear now in part because management spoke amazingly positive last week about the prospects. after a couple of years of negatives,
Paychex
(PAYX) - Get Report
is speaking positively -- what a buy with a 4% plus yield -- and it looks like
Automatic Data
(ADP) - Get Report
doing better.
Given the shape of the yield curve, where these companies make no money on the float right now, you have to say this portends well for small business. I know I mentioned American Express before as far as consumer defaults, but Amex is a huge lender to small business and its default rates peaked in February according to reticent CEO Ken Chenault.
Finally, I look a year ago and I wrote off
Office Max
(OMX)
when I visited the Lowe's Motor Speedway and one of the drivers I was following around was sponsored by them.
They seemed to be a casualty of the small business crash
. Have you seen that stock lately? It can't be where it is if small business is about to take a header.
For more on Automatic Data, click here.
Group 6: Industrials
. Few groups have been as downbeat as the industrials in their color of the current market.
Emerson Electric
(EMR) - Get Report
and
Illinois ToolWorks
(ITW) - Get Report
have repeatedly said they see no turnaround in orders. Their stocks repeatedly go up on the news.
Same with
Ingersoll-Rand
(IR) - Get Report
and
Caterpillar
(CAT) - Get Report
, which have been really downbeat even as the numbers have been quite good.
Eaton Vance
(EV) - Get Report
has indicated little turnaround, nor has
Parker-Hannifin
(PH) - Get Report
.
So why the heck are their stocks going up? This is natural and usually fertile short territory but we are now to the point where we are basing stock-buying on 2010 numbers and the market is sensing -- whether or not pundits adopt a double-dip attitude and sing it loudly -- that much better times are portended. I am not including housing stocks in my roundup here because they are false tells; part of my positive housing thesis is that housing will stabilize because of no new building, which puts the market in equilibrium.
Caterpillar needs new building to kick in. But the others are European and lesser-developed country-oriented and it is clear their businesses are turning. Honeywell's saying the same thing and
United Technologies
is downright bullish as its stock has made a major recovery, not unlike the stock of
3M
(MMM) - Get Report
, which is a company with deep roots in Asia.
Nucor
(NUE) - Get Report
perennially says things are bad, which begs the question: Why did they put through a price increase last week?
Cummins
(CMI) - Get Report
is signaling a new wave of truck-building.
The group seems totally on the mend if not downright ready to get jiggy. If
Boeing
(BA) - Get Report
is serious about the Dreamliner shipping, a whole new cohort of companies could revel here. I have given up on Boeing, perhaps at the wrong time, but the stories about ad hoc putting together of planes right now is simply not all that inspiring despite their endless "plane is ready" assurance. I will believe it when it flies over me as I am on the direct flight path to Newark's Liberty Airport.
The group's strength has been fought for tooth and nail and the group trades with the swings of the Chinese tealeaves. The linkage is just plain wrong. These are American- and European-based companies with substantial business in Asia -- in fact only 3M seems to be swung by Asia and that in part is because of monitors.
Europe is turning and that could be behind the strength. I know the stimulus package here seemed like a big giveaway to municipalities but maybe, just maybe they will use some of that money to build and not pay workers of the most secure workforce in the country ever-higher wages.
Check these links out for more on aerospace and the Chinaeffect.
--
Written by Jim Cramer in New York
.
At the time of publication, Cramer was long VF Corp. and Emerson. Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for
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