Strong employment numbers and rising consumer confidence have done nothing to improve the fortunes of American retailers.
Investors have dumped shares in the sector, especially earlier this year after poor holiday sales numbers, a rash of announced store closings and warnings of lower profitability in the future. Shopping malls once jammed with clothing, gadget and book sellers are emptying out and thousands of jobs have vanished from the industry in the last few years.
Mixed messages from the Trump administration haven't helped, either.
A proposed tax cut for middle-income Americans could put more discretionary spending dollars in the hands of individual households, but it's not certain that people would use extra cash to buy more things or pay down the debt they have already accumulated.
Then there was a proposed tax on imports crossing the border, which would make all sorts of products, from clothing to car parts, more expensive to sell in the United States. Retailers like J.C. Penney (JCP) and Target (TGT) pushed back strongly on the idea, arguing it would seriously damage their business and possibly force them to cut jobs as a way to reduce costs. In recent weeks, the administration appears to have backed away from the tax as it focuses on other priorities.
But investors can tilt too far in one direction at any one time. A proxy for the sector, the SPDR S&P Retail ETF (XRT) , is down nearly 3% this year through April, though that has rebounded from a year-to-date decline of as much as 7% in March.
Of course, the outlook for bricks-and-mortar retailers has been gloomy for years as stores are forced to close under-used locations and cut costs. In their place, e-commerce giants like Amazon (AMZN) have benefited from consumers' increasing embrace of internet shopping.
Sears Holdings (SHLD) has borne the brunt of these trends. Shoppers prefer the convenience of ordering items online and getting them delivered to their doors in a day, if not sooner. Sears said in January it was closing 150 stores and selling its Craftsmen tool brand to Stanley Black & Decker (SWK) for about $900 million.
But now that the border tax appears to be all but abandoned, with continued strong employment and consumer confidence, there may be some opportunities.
Retailers are figuring out how to embrace the mobile shopping trend while still attracting traffic to their physical stores, something that research has shown leads to higher sales than with just one or the other as an option for shoppers. Here's a look at some stocks that score highly in our models.
Burlington (BURL) , a discount apparel retailer, may seem expensive with a price earnings ratio over 30%, but it fits squarely in the model tracking the guru James O'Shaughnessy, a growth and value investor. Earnings per share have consistently increased for the last five years, and price to sales of 1.24 shows the stock still has room to grow under the model O'Shaughnessy uses to evaluate possible bargains.
Foot Locker (FL) scores on several models as the sports apparel and merchandise retailer benefits from a sector in which some big competitors have filed bankruptcy or sold to rivals. The model tracking guru Kenneth Fisher points to strong long-term growth rates.
Shares of Target score on the model tracking contrarian investor David Dreman, who hunts for overlooked stocks in beaten-down sectors. The retailer has a 4.3% yield, and its price-to-earnings of around 12 scores in the bottom fifth of the market, an indicator that could have room to rise.
Contrarians might also take a look at Dillard's (DDS) , another beaten-down retailer that has struggled with weak sales and eroding profit margins. The shares score in the model tracking Benjamin Graham, with a low P/E ratio of 11 and a track record of consistent earnings per share growth. Its shares have risen about 9% lately. But family-controlled Dillard's might be an acquisition candidate, or an activist investor could force it to unlock the value of its real estate holdings for the benefit of investors.
