Sorting Out the Retailers
Where does retail fit into all of this? Talk about a tough call. You have the high-growth retailers, which trade as a function of the bonds -- they rally through multiple expansion when rates go lower -- getting slammed. (We just bought some Wal-Mart (WMT) - Get Walmart Inc. Report off the slam, for what it is worth, betting on a bounce.)
You have the no-growth companies, the
Kmarts
(KM)
and
J.C. Penneys
(JCP) - Get J. C. Penney Company, Inc. Report
igniting, as they do well when the economy is booming and they surprise themselves to the upside.
You have the Net theme, which must be so hurting those bricks-and-mortar companies that even
Warren Buffett
acknowledges you have to be careful in the area.
There are the secular growth stories off of DVD:
Circuit City
(KMX) - Get CarMax, Inc. Report
and
Best Buy
(BBY) - Get Best Buy Co., Inc. Report
. And the secular decliner off of mail order,
CompUSA
(CPU)
, and
Restoration Hardware
(RSTO)
off of disorganization.
And there are the special situations: toy stores off of
Star Wars
,
Limited
TheStreet Recommends
(LTD)
off of the self-tender.
In short, "retail" as a play isn't working. When
Prudential
downgraded a bunch of high-growth retailers the other day, the call had huge impact.
But the better call would have been to buy the down-and-outers.
My conclusion: Retail, too, has to be viewed through a cyclical prism.
If you think the Me-Bizarro-Me-Like-'Em-Ugly Market will continue, then you buy Penney and
Sears
(S) - Get SENTINELONE, INC. Report
. If you think we are about to return to The Stocks Everybody Loves, go buy some
Abercrombie
(ANF) - Get Abercrombie & Fitch Co. Class A Report
or
Gap
(GPS) - Get Gap, Inc. (GPS) Report
.
I am from the
D.C. Comic
school of investing: I want to find the
Deeres
(DE) - Get Deere & Company Report
of retailing and avoid the
EMCs
(EMC)
. Then I can make money in the daytime and sleep at night. But if the great ones get too smashed -- witness Wal-Mart -- we swoop in for the surgical buy.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Wal-Mart, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at
letters@thestreet.com.
