How goes the retail sector? That depends on your perspective. The Commerce Department just reported that December retail sales dropped 0.3% (excluding gas and auto sales), compared with the previous month, less than the 0.5% gain economists expected, according to The New York Times.
On the other hand, the Times reports that sales at 1,000 retail chains saw sales rise a strong 4.6% in November and December, according to data from ShopperTrak, beating expectations of a 3.8% gain, and marking the strongest growth since 2005.
Predicting how an industry will perform in the future is always dicey, and that is especially true with retail. With the oil industry, for example, a rising tide tends to lift all ships, and a falling one, as we have now with sharp drops in oil prices, brings down virtually everyone. Retail, however, can have quite a few strong performers at a time when others are struggling.
I have found several retailers that are doing well and, according to my guru strategies (computerized strategies that mirror how major invest gurus analyze companies), are worthy investment opportunities. If your portfolio lacks retail, consider putting some of your investment dollars into any of these three strong performers.
The parent company of the Home Shopping Network, among other retail brands, HSN (HSNI), which sells products via television, the Internet, catalogs and retail stores, is favored by my James P. O'Shaughnessy strategy. This strategy calls out the company's large market cap of nearly $3.9 billion, earnings per share that have improved in each of the past five years, and a price-to-sales ratio of 1.11 (nicely below the 1.5 maximum allowed, indicating a well-priced stock). Among all the stocks that successfully jump these three hurdles, the strategy picks the top 50 to recommend based on relative strength (a measure of how well a stock has performed in the past year relative to the market). HSN's relative strength of 82 places it in this top-50 grouping.
Also, look at ULTA Salon Cosmetics & Fragrance (ULTA). Calling itself "the largest beauty retailer," the company sells salon products via a chain of 765 retail stores located in 47 states. ULTA is considered primed and pretty by my Peter Lynch strategy. It looks at the P/E/G ratio (price-earnings relative to growth), a measure of how well priced is a stock. To be acceptable, the P/E/G cannot exceed 1.0, and ULTA's P/E/G is well below this at 0.75. Another big plus for the company: It has zero debt.
One more retailer worth your consideration is Haverty Furniture (HVT). It sells home furnishings from over 100 showrooms in 16 states in the South and Midwest. Like ULTA, Haverty gets a nod from my Lynch-based strategy. Its P/E/G is a desirable 0.65 and it has relatively low debt (equity is nearly 8x debt). Though Haverty sells beds, there is nothing sleepy about this company.