The Daily Dose: Retail's Long Tentacles

 | May 19, 2014 | 9:35 AM EDT
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One of my advantages as a stock analyst is my extensive coverage of the consumer sector. From restaurants to retailers, I got it covered for the most part. Using my intimate knowledge of the likes of J.C. Penney (JCP), Wal-Mart (WMT), Target (TGT) and Chipotle Mexican Grill (CMG), check out what could be tied in with other areas of the economy and the market:

  • Amazon's (AMZN) willingness to sell general merchandise at a loss is affecting margins at big-box retailers.

  • Where are the tech investments related to infrastructure being made, and how much of it is happening? Commentary in this arena gives great insight on stocks ranging from Cisco Systems (CSCO) to Apple (AAPL) to IBM (IBM).

  • Are inventories too high or too low for the broader retail sector coming out of a key selling period? If so, do truckers and railroad stocks deserve to be trading there they are?

Sectors link to one another. You might want to start processing information in this manner, not just to position correctly for a trade or investment but also to have a general understanding on what is going on. So many people, especially fellow millennials, have no idea about the state of the global economy in the simplest form. That is troubling when you consider that we can access information in the palms of our hands.

Nevertheless, I enter the week armed with new information from last week's initial round of retailer earnings calls. I will apply this to the releases from Best Buy (BBY), Target (TGT) and others this week.

Did you see this?

  • Activewear is on fire at J.C. Penney and Macy's (M). Confirming everything I have been seeing, assortments from Nike (NKE) and Under Armour (UA) are more eye-opening this year and have a greater share of the floor space. I believe the resurgence in the category at mainstream department stores is bad news for lululemon athletica (LULU).

  • Macy's home department is weak, and there was no real explanation as to why on the earnings call (weakness concentrated in big-ticket items). Here are the first signs of the impact of the housing slowdown. Look out, Bed, Bath & Beyond (BBBY).

  • Some of the best-performing parts of a Macy's store in the first quarter were within opening price points. When you consider this along with the soft quarter for Wal-Mart U.S., the improvement in the labor market sure appears to be a bit misleading.

  • Inflation in food is weighing on the number of units that consumers put in a shopping basket. There doesn't appear to be an appetite to pay for food on a charge card or the spending power to reach for that extra package of Purdue, as was the case earlier in the year.

  • Electronics sales continue to be weak at Wal-Mart and Sam's Club. I remain concerned about the numbers that Best Buy will deliver this week. Consumers are just not shopping the electronics section inside of large retail stores, and when they do, it's for a pair of low-margin headphones, as opposed to a pricey television with a surround system.

  • As for shopping-mall real estate investment trusts (REITs), I am not a fan. I believe that J.C. Penney will be closing more stores in 2015. Sears (SHLD) is vanishing, and I believe its next loss-per-share report will hint at a new wave of mass store closures. Things are getting very ugly in this area of commercial real estate. Malls are zombies!

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