Holiday Stock Picks: 3 Retail Stocks to Buy and 3 to Sell

NEW YORK, N.Y. ( TheStreet) -- Foot traffic and spending at physical retail stores declined this year during the all-important Black Friday sales push, but that doesn't that mean you should drop shares of high-profile retailers stocks like Walmart (WMT) , Target (TGT) , and Best Buy (BBY) .

Shoppers are changing their habits and you should buy or hold the savvy retailers that are adapting, and consider selling those stuck in the past. 

Retail spending during Thanksgiving weekend fell 11% and shoppers spent 6.4% less each on average, according to the National Retail Federation. The drop marked the second straight annual decline in overall sales. But the data failed to capture fundamental changes in how people are now consuming goods and services, and how some retailers are taking advantage. Larger, more powerful smartphones in the hands of many has sparked a wave of mobile consumption, something underscored in data coming out of Cyber Monday, where sales were up 8.1%, according to IBM (IBM) . And Black Friday has morphed into "Black November," with many retailers offering sales well before and after the Friday following Thanksgiving.

Must Read: Macy's CEO: Big Things are in the Works

The NRF data also conflicted with TheStreet's observation of a dizzying number of shoppers flocking to the Thanksgiving Day openings of Best Buy, Walmart, Target, J.C. Penney (JCP) and Macy's (M)  seen over 36 hours from 6:00 a.m. on Thanksgiving until 6:00 p.m. on Black Friday. Many of those tired shoppers left stores with expensive smart TVs by Samsung (SSNLF) and Sony (SNE) , connected home equipment by Google (GOOG) owned Nest and Nike (NKE)  athletic apparel. 

Some retailers said they were bucking the alleged sales slowdown. 

"We have had just huge lines around the women's shoe department. Boots in particular have been the strongest category," said Macy's chairman and CEO Terry Lundgren in a phone interview with TheStreet on Black Friday. In an emailed statement near midnight on Thanksgiving, a Target spokeswoman characterized online orders as "strong." And on Black Friday, J.C. Penney's CEO Mike Ullman chimed in on the company's start to the holidays, noting "strong" sales.

In every changing industry, there are winners and losers. TheStreet takes a look at six individual companies to assess their fourth-quarter prospects, recommending three to buy and three to sell.


Buy or Hold: Target

"Electronics are off to a strong start with top sellers including Apple (AAPL) iPads, Beats by Dre Solo headphones, and Nikon Coolpix," said a Target spokesperson in an emailed statement to TheStreet on Thanksgiving, adding, "Housewares are also popular, and online orders are strong."

In several visits to Target stores over the holiday weekend, TheStreet observed that traffic thinned out, with consumers focusing on their grocery shopping for the week ahead.

With more discretionary areas of Target's business like apparel and home goods off to a good start, the retailer is on track to at least meet its fourth-quarter sales and earnings guidance. Target expects its U.S. same-store sales to rise by about 2% in the fourth quarter, and adjusted earnings per share to be in a range of $1.13 a share to $1.23 a share.

Must Read: Target Starts the Holiday Season with Strong Online Sales


Sell: Walmart

On Oct. 31, Walmart announced it would have its "broadest assortment ever" for the holiday season. Executives added that Walmart expanded its online product selection to include seven million items, up a million from last holiday season.

Although large crowds were seen at Walmart's Thanksgiving Day 6:00 p.m. opening, the weekend traffic slowdown for the industry, and Target's revival after last year's data breach, casts doubt on the company achieving the high end of its holiday quarter guidance. Walmart has outlined flat to 1% same-store sales growth for its U.S. business in the fourth quarter, and earnings per share of $1.46 a share to $1.56 a share.

Must Read: 3 Surprising Things that Happened at Walmart on Black Friday

Buy or Hold: Best Buy

Shoppers in search of the hottest new smartphones and televisions on Black Friday and the weekend met an augmented and enhanced Best Buy sales force. The company has invested heavily in staff training and it could be paying off in the form of sales of higher-priced, high-tech goods. Crowds concentrated in Best Buy's new Samsung SSNLF and Sony TV shops, as well as mobile phone shops.

That Best Buy was able to sell pricier merchandise amid a flurry of industry deals on electronics bodes well for outpacing its holiday sales guidance. Best Buy expects unchanged same-store sales growth year-over year for the holiday quarter.

Must Read: Best Buy's Holidays Begin with Strong Sales of Pricey Technology

Buy or Hold: J.C. Penney

"We saw a strong surge of customers visit J.C. Penney beginning at 5 p.m. on Thanksgiving," said CEO Mike Ullman in a statement on Black Friday, adding, "I'm encouraged by our results thus far." Strong traffic in the company's home department (11% of annual sales), Disney (DIS)  section (Frozen in particular), and in men's and women's athletic wear suggest it could reach the top end of its holiday sales forecast.

J.C. Penney expects fourth-quarter same-store sales to increase by 2% to 4%, following a 2% gain last year.

Must Read: J.C. Penney's Holiday Season Starts Off with a Bang

Sell: Abercrombie & Fitch

The preppy teen apparel retailer had 40% off the store signs plastered in its windows in the days leading up to Black Friday. On the big shopping day, and into the weekend, those signs at the Abercrombie & Fitch and sister brand Hollister, read 50% off. The more aggressive promotions suggest Abercrombie & Fitch was under fire from cheaper, more fashionable clothing alternatives like H&M and Forever 21 right from the start.

A challenging holiday season would not be a new development for the chain.

"We are clearly disappointed with our results for the third quarter. Continued weak store traffic was the primary contributor to the weak sales trend," said Abercrombie & Fitch CEO Mike Jeffries on Nov. 7 when issuing a sales warning on the quarter.

Must Read: Abercrombie & Fitch has a Series of Challenges Ahead, but One is Big

Sell: Coach

In the ongoing female handbag battle between Coach (COH) and Michael Kors (KORS) , the latter came out swinging with trendier styles. Coach stores were eerily quiet during the four-day stretch that commenced holiday shopping. The tepid demand for Coach products was also seen at its shops found in Macy's  (M) and Lord & Taylor.

Any holiday season sales shortfall for Coach, which is trying to stage a comeback, would be a major blow. The company plans to have 150 remodeled locations in department stores by the end of its fiscal 2015 reporting period in June of next year. It has also begun to introduce trendier styles from new creative director Stuart Vevers.

Must Read: Coach Overhypes its Turnaround

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