The herd is thundering, thundering toward the retail stocks that have been blown out of the joint by recession fears and it's driving a lot of folks crazy. That's because it's turning everything upside down. The stock of Macy's (M) is flying, but suddenly Walmart's (WMT) stock can't get out of its own way, even as it just reported an amazing quarter. The stock of Kohl's (KSS) has been on a tear at the same time that Costco's (COST) stock seems toppy. Don't look now but the stock of PVH (PVH) has gone up 20 points in just a few weeks time. The mall denizens, L Brands (LB) and Gap (GPS) are rallying and Under Armour is (UAA) taking off.
What's really going on here?
First, we got some better than expected retail sales this morning, emboldening buyers to look for second tier players that have been stalled or pancaked betting that a rising retail tide lifts all boats.
Second, there are cold snaps all over the country, perfectly timed to move all that winter merchandise.
Third, some of these companies were priced for Armageddon and it looks like employment's too strong and rates are too low to make the disaster scenario come true.
Finally, because there's very little new money coming into this market it has to come out of the stocks of higher growth companies including companies like Walmart that crushed the numbers.
Does the move make any sense? Let's take them case by case, starting with Macy's. The venerable chain reports on Thursday and judging by the stock, which is down 43%, few are looking for anything good although it has jumped a dollar and a half in the last week. So many think that Macy's can't reinvent itself or spend enough to stay in the retail arms race and it's location - the shopping mall - is suboptimal. With an 8.9% yield I think it could be an interesting trade. But no more, especially because this stock is identified negatively with tariffs so you are also betting on a trade deal with China.
The stock of Kohl's has run so much, from $43 to $58, that I am a little circumspect and have said same to those who belong to the Action Alerts PLUS club. The stock's moved up so rapidly in part because of some good luck with the Amazon (AMZN) deal, the one where you have to go through the store in order to return Amazon orders without having to pack them up, perfect for the burbs. I now feel if it doesn't say great things about Amazon the stock will get hammered. Let it come in, as it doesn't report to the 19th of November.
The cold weather is perfect for PVH and I believe that it could be doing better here and in Europe, an important market. I can see the stock reacting positively to its earnings announcement at the end of the month.
I have to be brutal here: Gap and L Brands? I just think they lack relevance and panache. They are tired and old. As I have said for ages, use strength to sell.
Under Armour? I think the stock's been overly punished by the headlines about the Justice Department and SEC investigations. I think the article about Under Armour in this morning's Wall Street Journal just seemed wrong to me. I think that CEO Kevin Plank is guilty of being nothing more than hard-charging to get his people inspired. I think he made real sales to real stores for real money and this will all turn out to be a buying opportunity.
How about the stocks being sold? Do not doubt for a moment that Walmart didn't have a good quarter. It was amazing. But this stock is right in the cross hairs of the rotation out of steady stocks and into the episodic cyclical risky plays. Same with Costco, except it hasn't come down enough to give you an opportunity here.
Ultimately I think this rotation runs its course and when it does you know what you will have bought of all of these.
The one that's being sold the hardest: Walmart, the one with the most staying power and the best plan to combat the real enemy, Amazon.