As we move through retailers' "main event," Black Friday, let's look at some names that may be the most attractive plays for the holiday season. My starting point is always earnings momentum, meaning that analysts' EPS estimates need to be undergoing upward revisions. This is your single best indicator that expectations are too low relative to what the company can achieve on the bottom line.
(As an aside, not only do I look for upward revision trends, I look for the strongest stocks. This is difficult to do if you don't have professional screening tools such as Factset or Bloomberg ... but that is why you read RealMoney -- we are always here to help.)
So we sort a list of names undergoing large upward revisions, but we need one more step. Ultimately we are looking for too-low expectations, but the multiple can indicate to us that the Street has detected the trend and that "whisper" expectations are higher. So like classic GARP managers -- those who seek "growth at a reasonable price" -- we also screen for a low price-to-earnings ratio. This leaves us with the names that have strong earnings momentum but are still reasonably priced. So what does Santa have in his bag today?
The table reveals some interesting trends. Away from the Christmas theme, a number of auto-parts retailers and used-car dealers are popping up on our list. The low level of car sales and deferred maintenance are taking its toll on America's fleet, and names such as Sonic Automotive (SAH), Penske Automotive Group (PAG) and Group 1 Automotive (GPI) are starting to shine.
On the Christmas theme, Macy's (M), with Dillard's (DDS) are neck and neck in the department store space. Since the crash, department stores have been caught between the strength of high-end retailers, as the wealthier consumer lives on, and the Wal-Marts (WMT) of the world, as many consumers downscale. Now that the U.S. is starting to show some signs of revival, aspirational consumers are loosening their purse-strings at the classic midrange department stores.
Finally, our list is dotted with very targeted specialty names. Cabela's (CAB) caters to the outdoor crowd in rural areas, while Foot Locker (FL) is outfitting the urban crowd with the latest Nikes. Pier 1 (PIR) is continuing its comeback of the decade with better assortments and better management, and Bed Bath & Beyond (BBBY) is a perennial great performer in the home goods category.
Interestingly, very little in teen fashion makes the list, but Aeropostale (ARO) is showing up on our list, although I would shy away on basis of the above-market multiple.
