Four Retail Names Have Likely Bottomed

 | Aug 05, 2014 | 11:01 AM EDT
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Is Coach (COH) bottoming? Is Whole Foods (WFM) bottoming? Is Panera (PNRA) bottoming? Is Target (TGT) bottoming? Those are the four questions I am hearing, and right now it looks like people are willing to take the plunge. So let's take them head on.

First, Coach has been able to make a directional shift more toward men that I thought it could pull off. Plus, China, way too often ballyhooed as a needle mover, actually is a needle mover. When you do $700 million in men's fashion and $500 million in China over the course of a year, that's big.

CEO Victor Luis sounds like he has a handle on things at last, even as North America has minus 17% comparable-store sales, a terrible number that simply wasn't as bad as expected.

I think this quarter made me feel better about the dividend, which now yields 3.77%, and the prospects

I think it's bottomed. I just don't know if it is going straight back up.

Whole Foods had a sense of urgency on the last quarter, and while I don't like to see a deceleration in comparable-store sales to below 4%, especially when I can get Kroger (KR) for a much lower price with a 4.6% comp, that urgency might start paying off in the second half of the year.

Still, I can't justify paying 26x earnings for a slower grower than Kroger at 15x earnings, especially when Kroger has a very healthy buyback.

To me, this stock can trade to the low $40s on hope that it has at last bottomed, but without real evidence that initiatives are working, I would rather own Costco (COST) with much better numbers and a solid growth path.

Panera doesn't seem to want to go down any more. I think that's important, because when the CFO left last night, I expected the stock to get hammered.

Perhaps he was a problem for Ron Shaich, and his departure means good things. It can't mean that things aren't suddenly not-so hot, because that's precisely what's been the case.

I await the national roll-out of Panera 2.0, currently showing some real good results in North Carolina, and the company's showing confidence in the turn by buying back a ton of shares here.

Oh boy! Target is tough.

The degradation from the security breach and the Canadian debacle is still with the company, but you are getting a 3.5% yield while you wait for new CEO Brian Cornell to turn it around.

I think that the damage from the breach will die down eventually, and if Cornell has a turnaround strategy -- there isn't one in place now -- you will see the low $60s before too long.

Now here is where I come out on all four. I don't like retail at this point in time because the consumer is not as strong as I had hoped. I do, however, like that gasoline has come down, and I do like that employment is going up.

Most important, unlike, say, JC Penney (JCP), I like the balance sheets of all four companies, and they give you flexibility that their turns can be executed without a lot of stress and strain.

My bottom line? If you are short any of these, I think it's a mistake. Having said that, without true signs of a turn, all you would be playing is a bounce off of a stronger consumer. I am heartened that all seem like they are done going down and hence are, indeed, worth speculating on, if only because they are washed out and not as bad as they used to be.

They were darkest before dawn, and today is dawn. But dawn does not mean a straight-up path. It just means that the pain may, at last, be over and the patients are out of the ICU and safely into rehab.

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