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Sorting Out the Retailers

When shopping in this market, you'd do well to view this category through a cyclical prism.
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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 Free Report off the slam, for what it is worth, betting on a bounce.)

You have the no-growth companies, the

Kmarts

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and

J.C. Penneys

(JCP) - Get Free 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 Free Report

and

Best Buy

(BBY) - Get Free Report

. And the secular decliner off of mail order,

CompUSA

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, and

Restoration Hardware

(RSTO)

off of disorganization.

And there are the special situations: toy stores off of

Star Wars

,

Limited

(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 Free Report

. If you think we are about to return to The Stocks Everybody Loves, go buy some

Abercrombie

(ANF) - Get Free Report

or

Gap

(GPS) - Get Free Report

.

I am from the

D.C. Comic

school of investing: I want to find the

Deeres

(DE) - Get Free 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.