Another Lackluster Retail Sales Number

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 |  Includes: AMZN, F, HD, HES, MCD, SVU, WFM
by: Neal Razi

Every month I examine the retail sales report for hints on both the state of the US Economy as well as certain investing ideas. It's a tremendously useful report and has led to quite a few good investing recommendations over the last year.

This month's retail sales report is a very strange one. There's a decent headline number at +0.4, and an even better number excluding the volatile auto category. However, in looking at it, you will see that most of the gains are merely gas and food prices with one or two bright spots.

Here is the chart

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(Click to enlarge)

As you can see, Gasoline sales were up +1.4% after a previous month of declines. That's usually mostly price increases, and January did see gas inflation after a few months of negatives. Oil is back up around $100. Investor Watch: Hess (NYSE:HES), which still has a lot of refining, is still striking me as undervalued thanks to potential new discoveries and improved Bakken drilling.

Food was up a similar +1.3%, and of course food prices are often tied to the delivery prices which are largely dependent on oil. As I always say, high food and gas generally detract from the rest of retail sales. Investor Watch: Whole Foods Market (NASDAQ:WFM) always seems well positioned to pass on price increases. For a more volatile and risky play, Supervalue (NYSE:SVU) is pushing lows but showing signs of stability. However, if they can't turn things around, they could well go lower.

The most positive development is Restaurants which showed a +0.6 growth. Restaurant spending is a great consumer confidence indicator, better than more formal consumer confidence surveys. This bodes well for consumer's ability and willingness to spend. Investor Watch: Keep an eye on McDonald's (NYSE:MCD). After really stretching valuations at about 19X earnings, they reported a good quarter and were promptly punished. The current rally has left McDonald's behind. If there's a meaninful pull back to the mid 80s, MCD is a great buy as they are one of the most robust and well managed companies in the world.

Building materials logs another small gain at +0.2, but year on year is an impressive +8.1%. Construction has been one of my investing themes for the last year and it seems as if the turnaround will continue. Investor Watch: I'll cover some of my construction picks over a few articles including Home Depot (NYSE:HD) and Nucor(NYSE:NUE) over the next week (Illness willing).

Merchandise logged some strong gains, probably on gift card usage clocking in at an impressive +2%. Let's see how the whole christmas season shakes down before doing anything with this though. The ICSC (International Council of Shopping Centers) has been reporting fairly lame numbers

In one of the biggest surprises, Non Store Retail (Internet and phone sales) logged a DECLINE for the first time in my recent memory. It would seem the Christmas season started and ended early for the internet. Investor Watch: Keep an eye on Amazon (NASDAQ:AMZN). If their growth run is actually over, the valuations could come crashing from the currently blazing 140X earnings. Recent history has shown any drop in Amazon stock to be a buying opportunity, but play this one safe.

Finally, auto logged a -1.1% drop. I'm not paying much attention to this, it's probably just seasonality, because low interest rates and coiled demand should continue to drive auto sales. Still, better to play it safe for now and see what next month brings because some of the earlier gains may have been tied to the let up of the "Tsunami effect". Investor Watch: Ford (NYSE:F), now paying a dividend, and GM(NYSE:GM) continue to bring extremely low valuations. One would imagine these valuations would improve eventually. Eric Landry of Morningstar recently highlighted a real off beat but potentially money making pick in Fiat, who is tied to Chrysler's strong improvement.

Overall, the retail sales report was weird this time, and not particularly strong. Most gains were tied to food and gas pricing, and usually strong auto and non store retail experienced unexpected drops. Let's see what affect the higher food and gas prices have for next month.

Disclosure: I am long GM, NUE.