Though the market's still catching up with New Year blues and the Dubai-Greece debt story, there has been little to change the belief that a fundamental improvement in business and consumer sentiment is still underway. Except for a few aberrations, statistics related to Industrial supply, inventory, home sales and retail spending has been showing clear signs of improvement. Though employment numbers are not picking up as fast as one would wish for, consumer confidence has clearly reversed the downward trend - I would hence see the recent DJIA fall to 10K levels as an opportunity to increase exposure to some retail stock plays.
Having said that, there's little reason to hurry and increase/build exposure to high-end retail...that is, I would still not bet on Abercrombie or American Eagle or Saks at this point! In line with the notion of a new normal for the economy, i am willing to bet on a continued trend of increased spending on discount stores and value-for-money plays as against higher-end retail.
Some interesting picks in value-for-money retail players in the current market scenario:
Walmart @ 52.90 - 25% below 52 week high, P/E of 15.29 (PEG 5-year of 1.24) is interesting. Even after we move back to sustained positive economic growth, consumers would stick to their new found buying pattern. With quarterly results expected on Feb 18, March options at 52.5 are attractive at ~1.40. COSTCO is also attractive, but i am not as upbeat considerable its near its 52 week high and trades at a PE of 24 (PEG of over 1.5).
JCP @ 24.89 - 48% below 52 week high, P/E of 21.54 (High PEG though of 2.5+) might be worth a look. In line with its recent drop from the 35-levels, Godlman moved JCP to the buy list as of early January. Though it might not be a long-term bet, recent weakness means there's enough upside potential short-to-medium term. With quarterly results expected on Feb 19, Feb. options at 25.0 are attractive at 0.5 levels and March options at 26.0 are attractive at ~0.70.
I am even more bullish on two other niche plays - Ross Stores and Kirkland:
ROST @ 46.43 - 19% below 52-week high, P/E of 14.75 (PEG of 0.89!) is a strong pick. Their strong value-for-money positioning has led to an increasing base of loyal clientele, and i would bet on richer valuations. With quarterly results expected on Mar 18, March 45 options at 2.2 and March 47.5 options at 1.05 are attractive.
KIRK @ 16.67 - 16% below 52-week high, P/E of 11.89 (PEG of 1.01) is a very strong pick. With quarterly results expected on March 12, March 15 options at 2.2 (though they have doubled in the last week) and March 17.5 options at 0.50-levels are attarctive.
Disclosure: Long in WMT & KIRK. No positions in the rest at this point.