12 Select Retail Opportunities for a Market Correction

On April 21st, I first warned that retail stocks were showing signs of being overbought during the market’s rally which began in early March 2009. At the time, the RTH (Retail Holders exchange traded fund) closed at 76.40 on April-20-2009. As of Wednesday, 05-13-2009, it closed at 77.40 to deliver a punk return of +1.3% vs. the S&P-500’s +6.19% over the same period. One would be hard-pressed to argue against its relative weakness.

Before I continue, allow me to state that I have no emotional or financial bias towards the market going down. As my website is focused on "the market direction", I am obligated to put forth my best effort to call things the way I see them for my readers. Therefore, I am bound to reiterate my bearish disposition towards the retail sector. Wednesday’s weak retail sales report should be enough to convince any nascent bulls to rethink their investment thesis. If this is not enough, then the weekly chart below (see Chart #1) should also give cause for concern.

Chart #1

Okay, so I am bearish on the RTH. Let’s just short the damn thing and be done with it. There! Now that I have committed high treason, I wish to get to the real purpose of writing this post.

It is often said that another man’s pain is another’s gain. In such a bear market in which consumers struggle, this very much applies to the retail sector of America’s consumer spending dominated economy.

Retail stocks, with the exception of financials and real estate related industries, represent one of the weakest links in our economy. Their relative underperformance compared to the broad equity benchmarks speaks volumes. However, chance favors he who is most prepared and no one is more prepared to weather this economic storm than the discounters, wholesalers, and family friendly restaurants. While they may be undeservedly earning the label of "babies with bathwater" in a market correction, they will also present investors with buying opportunities once the market condition stabilizes.

Below is a list of twelve companies that I have screened to give readers a head-start if a market correction occurs and eventually ends. To qualify, a stock must receive Hillbent’s proprietary fundamental composite grade of "A" (our highest mark) and maintain a relatively low quick ratio and debt to equity ratio. Here is a list of results below.

Retail Sector Watchlist

(Note that this list does not represent specific recommendations, but is intended to serve as a research assistance resource. Investors are strongly encouraged to perform their own due diligence to determine if any of the companies listed in this report are suitable for their respective portfolios and risk profiles.)

Disclosure: Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Comments

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Clinton:

You can classify retail into three groups: the low cost producers, the "must have" retailers and the me-too group. If you stay away from the last group, you should do just fine with retail if buy them at the right time/right price.

May 14 10:46 AM