It has been a tough week if you have anything to do with the world of retail. Just about every company that opened its books to the Street this week got punished for the act.

The list of “disappointing” reports is getting longer by the day.

Lowes (NYSE:LOW) kicked off the week with scary-low figures. Home Depot (NYSE:HD) beat the Street but still got punished after a slew of less-than-stellar economic reports.

Outside of the home-centric sector, shares of Liz Claiborne (NYSE:LIZ) plummeted on Monday after the Standard and Poor’s cut its rating on the unprofitable retailer to B, a two-notch downgrade. The company’s rating now stands five levels below investment grade.

High-end retailer Abercrombie & Fitch (NYSE:ANF) is also deep in negative territory for the week after succumbing to industry pressure and a downgrade from Susquehanna.

Obviously, the market believes a business model that focuses on trendy, expensive clothing is not a place to be during a deep, protracted recession.

And of course, there is Eddie Lampert and his Sears Holding (NYSE:SHLD). While the store may be the hideout of choice for any enslaved husband while his wife shops for new bed linens, fewer of us our purchasing the store’s products.

Shares of the company are down by double-digit proportions today after Sears announced it lost $94 million over the past three months. It is tough to make a profit when revenues are plunging by 10% (12.5 for comparable-store sales).

Essentials only investing

If consumers are not spending their money at the high-end stores or paying to fix up their house, where are they spending it? After all, there is no choice but to spend money on the essentials at the very least.

The key is understanding which retailers are stocked up on the essentials. Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) are the first to come to mind.

And guess what… shares of Target are up on the week and Wal-Mart is just slightly in negative territory.

One of the most appealing sectors of the retail market is the ultra-cheap (in price and quality) “dollar store” segment. As the market breaks out its magnifying glass in an attempt to find any signs of so-called green shoots, shares of company’s like Family Dollar (NYSE:FDO) and 99 Cents Only (NYSE:NDN) have dropped from their recent highs.

The discounting is a mistake. Today’s unexpected surge in first-time jobless claims (a jump of 15,000 claims) proves tens of thousands of American consumers are still at risk of losing their jobs. That means they won’t be shelling out their reserves any time soon.

Instead, they will continue their spendthrift shopping.

While there are sectors much more likely to hand you sizeable profits in the near future, no portfolio is healthy unless it is properly diversified.

If you need exposure to the nation’s retail market, look at the big guys like Wal-Mart and Target or the small discount retailers where a buck will buy you just about anything… but a share of the company.

Finally, if you have been playing this sector or have your eye on any big movers, your fellow readers would love to hear about it. Drop us a line and let us know your thoughts.

Source: Dangerous Retail: The Sector That Refuses to Recover

This from Today’s Financial News:

It is tough for many investors to admit, but marketers rule Wall Street. On most days, it is not true fundamentals that rule the Dow. It is the change in the way we perceive a company’s valuation that makes a stock go up or do.

If marketers do their job, share price rises. If they fail, shareholders feel the pain.

Investors rarely weigh a company’s marketing talent in their decision-making process. It is a flaw that could cost them dearly. In many cases, a firm’s marketing team has more to do with moves in its valuation than do changes on its income statement.

A perfect example is Under Armour (NYSE:UA). The company has one of the best marketing strategies in all of business, but even the most talented salesman cannot sell something to a person with no money.

Blinded by the facts

Look around Wall Street. Best Buy (NYSE:BBY) told us yesterday it has witnessed a “seismic” shift in consumer spending. Macy’s (NYSE:M) posted a horrid third-quarter earnings report. And Linens ‘n Things is headed to the history books.

On the other hand, Goodwill Industries reports sales are up by 7%. Ultra-discount stores like 99 Cents Only (NYSE:NDN) and Family Dollar (NYSE:FDO) are seeing their share price soar. Wal-Mart (NYSE:WMT) is the only major retailer with even a semblance of good news.

The only places Americans are spending their money is at the cheapest store they can find.

So what in the world continues to make investors believe Under Armour and its expensive discretionary clothing lineup will maintain historic sales levels?

Let’s face it. The American economy is in a deep recession. The folks that were buying Under Armour’s over-priced and trendy gear are now the ones that have lost their jobs and cannot afford their homes.

The last time I recommended betting against the company, we raked in gains of over 70% in just five days. With share price above $21 today, it is time to do it again.

Here are some facts to prove my point:

-    U.S. retailers recorded their worst October ever, with overall same-store sales dropping by 0.9%.
-    Consumer confidence is at its lowest levels ever.
-    Under Armour continues to operate with negative cash flow.
-    Maverick Capital, which owned over 7% of Under Armour, just unloaded its entire position.
-    The number of shares short has grown to 36.5%.

With figures like those, it is hard to believe investors are willing to maintain the company’s price-to-earnings ratio of 23. It is foolish to think the company will maintain a sales pace anywhere close to levels it has enjoyed lately.

Even the company’s executives know a rough road is ahead. They just lowered their operating income estimates to a range of $97.5 million to $104.5 million. They previously announced expectations of $104.5 million to $105.5 million.

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With consumers basically locking their wallets and throwing away the key, even the new estimates are far too high. With consumer spending at the retail level dropping by nearly one percent, investors should not believe Under Armour will grow its sales by 24%.

Under Armour’s brand is one of the strongest in the industry, but a brand can only take you so far. Once a company matures and enters its slow-growth phase, fundamentals take over and investors take a dramatic hit.

Under Armour’s overly loyal investors have had a tough time realizing this time-tested fact. They will suffer as share price drops towards $15 after the next earnings release.

Unless you take a short position, steer clear of this falling star.

Source: Under Armour (NYSE:UA) Cannot Hide From A Recession

Stores like Whole Foods (NASDAQ:WFMI) and Trader Joes are watching their customers head to low-cost competitors like Wal-Mart (NYSE:WMT) and Safeway (NYSE:SWY).

It is no surprise to see an ultra-cheap retailer like 99 Cents Only Stores (NYSE:NDN) climb its way to the sole spot on the list of companies reaching 52-week highs today. The global economic crisis has actually been the best thing to happen to the company’s share price in a long time.

The rationale behind the positive run is obvious. When the economy is in the gutter, consumers have less money to spend on the things they need. So they go to the cheapest retailer they can find.

A wino’s delight

When we need a toothbrush, why spend $4.99 on a fancy name-brand brush when you can get one for less than a buck?

Or how about cleaning supplies? Or stationary? 99 Cents Only even sells bottles of wine at its namesake prices.

Of course, 99 Cents Only is not the only ultra-cheap retailer doing well these days. Dollar Tree (NASDAQ:DLTR) and Family Dollar (NYSE:FDO) are both multi-billion dollar companies making their investors money over the past few months.

While these companies may appear as an oasis in a desert of losses, investors need to use caution. All three stocks have gotten a lot of attention lately and are becoming overpriced.

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For example, after more than doubling its share price since July, 99 Cents Only has a price-to-forecasted-earnings ratio of over 30. If the next earnings report misses expectations by only a small margin, shareholders could be in for a sizeable drop.

Granted, sales have increased over the past three months and are likely to surge even higher during this quarter, but the competition is catching up. Traditional retailers, which are often slow to react to economic waves, are finally making moves to target consumers during a recession.

Eye-catching sales and incentives are drawing cash-conscious consumers back into retail stores. Beyond that, ultra-discounters do not offer all the products consumers require. They will still head to the more-expensive “big box” stores for their needs.

Consumers are changing their habits, leading savvy investors to follow. Track the trends and invest appropriately and you could be one of the traders celebrating a 52-week high today.

Source: Cheap date: 99 Cents Only Store (NYSE:NDN) hits 52-week high

This from Taipan Publishing:

’Tis the season of too damn many cocktail parties. I simply don’t have the stamina for so much small talk and gossip, and don’t much care for finger food – or weak drinks.

But this time of year they are simply unavoidable (i.e., my wife makes me go). And so, all too often, I am forced to put down my tumbler of 12-year old single malt and my dog-eared edition of Gibbon’s Decline and Fall, abandon my armchair, and trade the comfortable sweater and slippers of the misanthrope for the sport jacket and slacks of the supposedly social.

Fortunately, human beings are unable to recall the sensation of pain (it’s true: look it up). And so most of these events are immediately forgotten. However, I attended such an odd gathering the other night that is has stuck in my mind.

It wasn’t exactly seasonal per se. Nor was it another of those “buying parties” wherein we are feted with Vienna sausage and crab dip while a dowager of indistinct age pitches time shares in Boca, jewelry or Tupperware party bowls. (I’m told that one such get together saw the demonstration of a line of risqué undergarments. However, I was not invited to that one. And it’s probably just as well.)

Getting Rid of Excess Baggage

In many ways, in fact, it was the harbinger either of a new age or perhaps the return to an older age. You see, the ladies were there not to buy, but rather to sell stuff. Specifically, excess gold jewelry.

Please keep in mind that I do not live in a poorer quarter. Our town’s historical Main Street has no pawnshops nestled amongst its antique dealers. (It does have a rather nice used bookstore, though, where I recently stumbled upon a lovely 1930 edition of Voltaire’sCandide.)

And yet, our hostess had invited an assessor of used gold items – a man prepared to dole out cash (checks really) for broken chains, undersized rings and mismatched earrings.

Having nothing to offer the gentleman beyond my wedding ring (and I am not that greedy – or stupid), I abandoned the living room to the ladies and joined the other spouses around the downstairs wet bar.

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The New “Rich”

Even here, I witnessed a marked shift in the conversation. Gone was the usual bragging about the size of one’s new house. So too, the crowing of recent market gains. (No shock there!) The horsepower of this year’s offering from Cadillac? Fuggeddaboudit!

Instead, the hot subject was the new frugality. One gent was touting how he could up his Honda’s gas mileage by coasting to stop lights. Another was alerting everyone to a large discount on driveway macadam from a building supplier in the next county.

A third fellow was all full of vinegar as to how he had just dressed down his teenaged daughter about her grades: “She won’t qualify for a college grant if she gets another B in economics.”

Even more disorienting: Suddenly, my hoary old scold (meant solely to discourage further financial inquisition) that “the best gain the average investor could hope to achieve could be had by paying off his credit cards” was the talk of the room!

Can it be that “cheap” is the new “rich?”

The American Wallet Snaps Shut

Certainly my neighbors are not unique. Gob-smacked by years of rising prices, the American wallet has finally snapped shut. Consumer spending in September fell some 0.3%, the largest single month drop in the past four years. Add in July and August, and you have the “worst” quarter in 28 years.

I have put quotes around worst, because the true historical value of this sea change has yet to be determined. We may be witnessing the demise of our great consumer culture.

This is disastrous news for those who are tied closely to the many endeavors that depend desperately on the American need for new crap.

Which companies might tumble when pointless spending falls from grace? Certainly the direct purveyors of chromed junk are already suffering mightily.

Detroit Still Can’t Buy a Clue

GM (NYSE:GM) and Chrysler are attempting to figure out which one has enough loose cash left to buy out the other. Borrowing for the deal in this ultra-tight credit market is simply out of the question.

Meanwhile, poor old Ford (NYSE:F) is still banking on selling one more generation of humongous pickup trucks to commuters and construction workers who aren’t even sure if they have a job to commute to.

And speaking of borrowing, GM’s once mighty (indeed sole) profit center, GMAC, is trying to redefine itself as a bank holding company so as to qualify for a piece of Washington’s trillion-dollar largesse.

The Only Profits in This Vast Empty Space

It appears that various other sellers of overpriced bric-a-brac and gewgaws are in the soup as well. The only players in the retail “space” who have shown any strength at all during this “season of saving” are Wal-Mart (NYSE:WMT) and the 99 Cents Only Store (NYSE:NDN).

The rest, from high to low, Nordstrom (NYSE:JWN) to Kohl’s (NYSE:KSS), are hemorrhaging red ink all over the New York trading floor.

Looking to the near term, most of American retail still looks like viable short candidates. My recommendation: Buy puts every time these guys poke their heads out of their little rat holes to spin their little tales of “better times coming in January.”

A Change in Values?

However, any old veteran of tighter times and previous ideas as to the value of thrift, might very well view the sudden decrease in spending, increase in wages, and spike in actual savings (Real savings! Remember them?) as a sign of better times to come.

Can you imagine a time when bankers were the type of men you could actually trust with your savings? Or how about a market that valued companies that actually made profits by providing genuinely valuable goods and services?

Goodness. The cherishing of True Value could even mean the end of shallow Technical Analysis!

Naaah: Never gonna happen.

Source: The Return of Real American Value?

As I was doing my usual bout of “marathon weekend reading” I came across an interesting piece on Warren Buffett’s recent trip overseas. For those who don’t keep tabs on the “Oracle,” Buffett has been touring Europe for the last week or so in an effort to promote Berkshire Hathaway on the other side of the pond.

Reason being, Buffett’s looking to start buying up “family owned, privately held” businesses on the cheap overseas.

It’s difficult for him to find “Buffett-sized” deals in the U.S. anymore, so it only makes sense that he’d look for greener pastures elsewhere. However, Buffett also gave another reason for why he might want to start placing his bets in other parts of the world…

My friends and I have been debating the “recession” topic for a while now: Are we currently in one? Will we run into one this year or next? What will the effects be?

But when I read that Buffett thinks the U.S. is already in a recession and it will be “longer” and “deeper” than any we’ve seen for quite some time, I definitely began to think less about “what if we go into a recession” and more along the lines of “What should I do with my money now?”

There are dozens of questions (and even more answers) on TickerHound about which sectors hold up the best during a bear market, but a recent question is what inspired me to write today’s article:

“Will certain retailers do well during a recession?”

Traditionally, retailers don’t do well at all during a downturn — consumers start to curtail their discretionary spending as times get tougher, and items like clothes, cars and all the other little “extras” aren’t ranked very high on the “purchasing priority list.” However, if you really think about it, there are some retailers that “should” do rather well during a protracted downturn.

The fact of the matter is, people aren’t going to completely stop buying the little extras, they’ll just be more selective about where they buy them.

While I’ve come a long way since my childhood, I still remember what it was like when times were tough around my house. We were a blue collar household, three kids, my parents were always hustling at the end of each month to make ends meet — so when one of us needed new clothes, school supplies, etc, we’d take a trip to the closest discount store and bargain hunt.

Without doing a survey of every household in the U.S., I’d bet that when times are tough and a recession is imminent, most of America behaves the same way. In fact, if you take a look at a 10-year chart for some of the discount retailers, you’ll immediately see that their stocks do better when the market is doing worse!

So here are a few discount retailers that I think are worth digging into if you’re looking for some “Retailers for a Recession”:

1. Dollar Tree (DLTR: NASDAQ)

• Market Cap: $2.99 Billion
• P/E: 15.67
• Dividend: N/A
• 12 Month Price Gain (Loss)%: (19%)

2. Family Dollar Stores (FDO: NYSE)

• Market Cap: $2.76 Billion
• P/E: 13.5
• Dividend: 2.5%
• 12 Month Price Gain (Loss)%: (40%)

3. Fred’s (FRED: NASDAQ)

• Market Cap: $438.65 million
• P/E: 41.13
• Dividend: 0.7%
• 12 Month Price Gain (Loss)%: (25%)

4. 99 Cents Only Stores (NDN: NYSE)

• Market Cap: $538 million
• P/E: 85
• Dividend: N/A
• 12 Month Price Gain (Loss)%: (46%)
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