The story of the day appears to be retail where investors are pushing a number of names higher on both good results and disappointing results. In some cases the disappointing results were not as bad as had been anticipated, but in other cases they were a complete surprise but special events such as share repurchases have convinced investors that long-term management believes business will be good.
Our view is that investors should still be long the retail sector via the sector based ETFs which provide quality names and diversification that lower the risk of taking on positions in the sector via individual names. We still like the SPDR S&P Retail ETF (NYSEARCA:XRT) as our choice for the retail sector, even though some of the winning names we rotated out of have continued to hang in there.
Chart of the Day:
The move above $85 today in the SPDR S&P Retail ETF is bullish in our view, and so long as that level can hold over today's session and the next few it could help build enough momentum to test recent highs.
Source: Yahoo Finance
We have economic news today and it is as follows:
- MBA Mortgage Index (7:00 a.m. EST): Est: N/A Act: -8.5%
- New Home Sales (10:00 a.m. EST): Est: 400k Act: 468k
- Crude Inventories (10:30 a.m. EST): Est: N/A Act: 0.068 M
Asian markets finished higher today:
- All Ordinaries -- up 0.86%
- Shanghai Composite -- up 0.35%
- Nikkei 225 -- down 0.54%
- NZSE 50 -- up 0.11%
- Seoul Composite -- up 0.30%
In Europe, markets are trading lower this morning:
- CAC 40 -- down 0.70%
- DAX -- down 0.79%
- FTSE 100 -- down 0.63%
- OSE -- down 0.22%
Target Hits & Misses The Mark...
It is no secret that Target (NYSE:TGT) has had its share of issues, namely the data breach at the end of 2013. The shares have performed poorly, as many would have expected, however in the past few weeks it seemed that there was a lot more piling on in regards to negative outlooks. That increased skepticism explains the reasoning behind today's strong move; the bad news was not nearly as bad as everyone had anticipated that it would be.
Although Target did meet its revised guidance, it is important to note that the company lowered its outlook for the current quarter and the full year. Obviously the data breach is going to be a big drag on earnings moving forward, both because of the actual costs as well as the opportunity cost of lost customers. Another potential problem for Target appears to be their Canadian subsidiary, a business they just recently launched. The company miscalculated in their first year in business and EPS in the fourth quarter alone were affected by $0.40. This means that losses in Canada were higher than the losses the company realized from the data breach in the quarter.
Ultimately this is a very well run company with plenty of opportunity for growth and we think that it will outperform in the long-term, especially with an improving economy. The big question marks moving forward are the ultimate costs of the data breach and the performance of the Canadian stores. Our attention will be upon the stores in Canada and their performance (and comps) moving forward in the near future as that is something that the company can easily change.
With Target at two year lows, it certainly looks like this is a good entry point, but this is all dependent upon the company actually being able to turn around the stores in Canada and cut losses as they ramp up their growth plans in the country.
Source: Yahoo Finance
If one were to ask us whether we would want to purchase Target shares or Wal-Mart (NYSE:WMT) shares at this time, we would lean towards Target as their problems seem more straightforward and easier to fix in an improving economy (which in our opinion is not necessarily the case for Wal-Mart moving forward).
Improving Home Improver
For the past few years Home Depot (NYSE:HD) has easily outperformed Lowe's (NYSE:LOW) when measuring the performance of its stores in many key categories. All boats rose with the rising tide in the home improvement market, but Home Depot was the outperformer and top pick of Wall Street due to the outperformance in operations and large share repurchase program which seemed to be raised more often than not.
Although we thought the transition to Lowe's stores would happen earlier, that did not materialize. It does now appear that consumers are switching towards the Lowe's brand as the stores and their offerings have been revamped and the company tries to target consumers by region. This quarter the strategy finally began to pay off and as Home Depot results were impacted to the negative side after the harsh winter storms, Lowe's was able to benefit as they responded quickly to the changing weather and had exactly what consumers wanted fully stocked.
If Lowe's has finally turned the corner, watch for shares to close the gap with Home Depot moving forward.
Source: Yahoo Finance
The jury may still be out for another quarter or so on whether the momentum has shifted within this highly competitive field, because we have read some reports that indicated Home Depot's results could have been unfairly impacted by certain key geographical areas where they have a heavy concentration of stores were hit much harder than those of competitors, such as Lowe's.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.