By David Sterman of StreetAuthorityAs smoke clears from the Cisco ( CSCO) stink bomb, here is a ray of hope: The jobs picture could get much brighter heading into 2011. More jobs means more consumer spending. Best Buy ( BBY), Winnebago ( WGO) and Citi Trends ( CTRN) are quintessential retail picks for an imminent spending rebound. The fact that 151,000 jobs were created in October is impressive. The fact that August and September jobs numbers were upwardly revised by a collective 110,000 was even more impressive, as it underscores that things were not quite so bleak as had been feared a few months ago. Could we now be on the cusp of a robust and sustained upturn in jobs? It's too soon to say. Employment numbers for November and December are hard to handicap, especially since most major companies will hold off on any significant changes in hiring until after we are done with 2010. On the other hand, looking into next year, a real case can be made for an improving job picture. Corporations are now flush with cash after a string of highly profitable quarters, existing workers are being pressed to shoulder an unsustainably heavy load, and companies are less likely to fret that we're headed back toward the dreaded "double-dip" recession. All signs point to "help wanted" signs popping up with more frequency next year. My colleague Nathan Slaughter has taken a more in-depth look at the employment picture, and has a pair of intriguing staffing stocks he's getting behind. You also can't forget the retail angle. As employment picks up, new hires will begin to have more cash to spend, which should help retail stocks. Here are three companies that would clearly benefit.
WinnebagoEven in a lousy economic environment, this maker of recreational vehicles is seeing signs of a solid rebound. The company has blown past estimates for each of the last three quarters and is on track to boost sales +25% in fiscal (August) 2011. Then again, projected sales of $560 million are a far cry from $1 billion in revenue seen in 2004 and 2005. Per share profits are unlikely to top $0.50 next year, but as investors start to think about the impact of rebounding consumer sentiment, they'd do well to remember that Winnebago earned more than $4 a share when times were good. The stock rallied to $17 earlier this year but has since pulled back to around $11. Shares look like quite the bargain now -- if you believe the consumer will start to stir back to life in 2011.
Citi TrendsShares of this retailer, which targets lower-income inner city consumers, has seen its stock fall roughly -45% in the last six months as rising unemployment has been most deeply felt in this target demographic. The company badly lagged profit forecasts for the quarter ended in August; and the current quarter, which ends in a few weeks, is likely to be similarly weak. Yet those trends are obscuring a broader expansion plan that is increasing the company's footprint in major markets. That's why analysts still think sales and profits will rise around +15% both this year and next. That growth rate is lower than what many had expected six months ago, when this upstart retailer was seen to be capable of +20% to +25% growth. Blame it on the tough economy. If employment trends continue to improve, then sentiment may turn positive again for Citi Trends. A word of caution: the U.S. government may rein in the current extension of unemployment benefits, which would have a noticeable effect on Citi Trends' customer base, so shares may stutter the next few months, before setting the stage for a rebound in 2011. I like this name as a long-term holding, and investors should be ready to pounce if and when shares fall into the upper teens.
Action to Take: All three of these companies have very strong reputations among their customer bases, yet all also sell discretionary wares, so that great reputation has been of no help while consumers are insecure. An emboldened consumer would flock back to brands they trust, such as Best Buy, Winnebago and Citi Trends.Shares of Best Buy have moderate upside, with ample downside protection in the $40 range, while Winnebago and Citi Trends may take longer to appreciate, but they also sport more upside. By David Sterman on StreetAuthority
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