Disappointing retail sales data this week sent the consumer discretionary sector lower by 0.22% on Wednesday, but the sector was already in a downtrend prior to that news. The Commerce Department said that December retail sales fell by 0.9% -- a far cry from the expected 0.6% gain. Some of that decline was due to lower gasoline sales, as Americans are shelling out less at the pump.
Longer term, many economists and analysts remain optimistic about the sector's prospects for 2015, even as economic growth in the U.S. continues hobbling along, rather than charging full steam ahead. So far this month, the SPDR Consumer Discretionary ETF (XLY) is down 3.74%.
But, as always, there are sub-trends within the wider trend. For example, S&P 500 component Sherwin-Williams (SHW) has been on a tear since October, rallying to new highs, albeit somewhat tepid weekly volume. The paint maker reports fourth-quarter earnings on Jan. 29, with analysts eyeing earnings of $1.38 per share on revenue of $2.6 billion. Those would be increases over the year-ago quarter.
Another home-furnishings-related stock is small-cap La-Z-Boy (LZB), which has been attempting a move out of a consolidation that began in late November. The stock actually cleared that consolidation Tuesday, but reversed lower. In some respects, La-Z-Boy is living up to its name, lounging around well below its 52-week high, reached a year ago.
The most notable home-remodeling names, Home Depot (HD) and Lowe's (LOW), also fall under the S&P 500's consumer discretionary category. Both large-caps have been trending into new high ground recently, although pulling back this week.
Home Depot is scheduled to report earnings Feb. 24, with consensus estimates calling for EPS of $0.89 on sales of $18.7 billion. Those would be top- and bottom-line increases over the year-earlier quarter. Lowe's is on deck to report the next day, and Wall Street sees net income of $0.43 per share on sales of $12.3 billion. Those, too, would be year-over-year improvements.
The point is, there's retail, and then there's retail. For example, on Thursday, perennial whipping boy Best Buy (BBY) had another of its seemingly endless string of "punishment days" after bad news. Ho hum, nothing new to see here. Best Buy is stuck in what's essentially no man's land: It's neither a growth stock, nor a true value stock.
It's easy to get nervous about a sector like consumer discretionary if your thesis is "The economy is going to heck" (I'm paraphrasing, of course). But that brings up two questions:
- What is that thesis based on, other than perhaps political anger (no matter what "side" you're on, it seems everyone is angry these days) or TV's talking heads, who need to fill airtime with bad news?
- Should you really be making sector bets, anyway?
Generally, my vote is no, particularly in a sector like consumer discretionary that can be more economically sensitive than, say, utilities. If you want to use sector picks to round out an individual-stock portion of a portfolio, stick with well-established companies with a solid competitive advantage. Avoid a company like Best Buy, which is notorious for having trouble finding its footing.