By Gordon Wilcox
It's the most wonderful time of the year.
Well, that's how the song goes, but for retailers, this is the most critical time of the year. Thanksgiving is Thursday, and that means after Americans recover from their turkey and pumpkin pie-induced food comas, they'll head to malls and shopping centers in droves on Black Friday.
Despite the European imbroglio, recent data points on the U.S. consumer have been surprisingly positive. That momentum will be put to the test over the coming weeks, and the fates of scores of retailers hang in the balance.
Last week, we took a look at five retail stocks to embrace on Black Friday. This week, in the essence of fairness, we'll have a look at five that you can push your shopping cart past, because there are better opportunities elsewhere in the retail space.
Lowe's (NYSE:LOW): The second-largest home improvement retailer has had its share of struggles this year -- and hey, Jimmie Johnson didn't win a sixth consecutive Nascar title. That's not the reason for the slack performance in Lowe's. The stock really has played second fiddle to larger rival Home Depot (NYSE:HD) this year. Home Depot is up more than 7% year-to-date, while Lowe's is off roughly 7%.
After a nice October rally, the chart shows Lowe's is weakening and the stock is starting to correct an overbought condition. It may be OK to be bullish on the consumer, but it's still too early to be bullish on the housing market.
The Gap (NYSE:GPS): Last week, Gap reported the latest in a growing line of earnings disappointments. Revenue fell 2% in the third quarter, and a comp of -5 isn't acceptable. (Those aren't our words. Gap CEO Glenn Murphy said that.) Shares of California-based Gap are down almost 16% year-to-date, and the carnage may not stop, as rising input costs have hurt apparel retailers of all stripes.
Gap couldn't break through resistance at $2,0 and the stock has downside risk to support at $17. If that doesn't hold and Black Friday is bad for the Gap, the only options are to avoid the stock or be short.
Sears Holding (NASDAQ:SHLD): An extremely disappointing earnings report from Sears last week aside, think about this stock this way: Has anyone even mentioned to you lately that they've been shopping at Sears or Kmart? Maybe the Kardashians' attempt at fashion will prove fruitful for Sears this holiday season, but there's still the matter of Kmart getting its lunch handed to it by Target (NYSE:TGT) and Wal-Mart (NYSE:WMT).
That's not to mention Eddie Lampert's company has one of the ugliest charts in the retail sector. Trading just below $63, there's a lot of real estate between current levels and the next support, at $55.
American Eagle Outfitters (NYSE:AEO): With all the problems the Gap is experiencing and the plunging shares of Abercrombie & Fitch (NYSE:ANF), it's hard to endorse American Eagle as a wise Black Friday play. In all fairness, it's not the worst of the retail lot, but it's not great, either. This stock would be very vulnerable to accelerated selling if support at $13 is breached.
Pacific Sunwear of California (NASDAQ:PSUN): Even though Pacific Sunwear focuses on apparel that is very California-centric in nature, the chain has stores in all 50 states. That hasn't helped as PSUN languishes below $2 a share, and if the stock were to spend significant time below $1, it could risk delisting from the Nasdaq. All that despite rampant insider buying of the shares. You don't even have to look at PSUN's chart. Just get out a pen and paper and draw a diagonal line sloping downward.
Bull Case: Maybe, just maybe, long-term investors can cozy up to Lowe's in the event housing market improves. American Eagle has some potential to surprise this Black Friday, and Gap's growing China exposure is at least compelling.
Bear Case: Sears has just lost too much of its value over the last 18 months to say it's a buy here. Better prices could be had next week, next month, etc. PSUN is dying a slow death. Continued weakness in housing will suppress Lowe's.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.