Sure Things and Growth Picks in Retail

Finance Articles | December 10, 2010

If you need sure-bet plays in retail, you have to stick with Wal-Mart Stores, Inc. (NYSE/WMT) and Costco Wholesale Corporation (NASDAQ/COST).

If you need sure-bet plays in retail, you have to stick with Wal-Mart Stores, Inc. (NYSE/WMT) and Costco Wholesale Corporation (NASDAQ/COST).

Costco delivered with strong results on Wednesday, after posting earnings of 312 million dollars, or $0.71 per diluted share, above the consensus estimate of $0.69 per diluted share, according to Thomson Reuters. Revenue growth was 11% to $19.24 billion, above the consensus estimate of $18.81 billion. The results are consistent and continue to show steady growth, but, for extra growth, you need to look at the smaller companies.

Costco, for instance, has a market cap of $29.88 billion and is estimated to report sales growth of 8.1% and 7.7% for the fY11 and FY12, respectively.

Yet, take a look at small-cap PriceSmart, Inc. (NASDAQ/PSMT), an operator of warehouse clubs in Central America and the Caribbean. PriceSmart reported a booming 15.8% increase in its November same-store sales and a 21% year-over-year rise in November sales. These are strong metrics, and consider the comparative sales growth for PriceSmart, which is 14.8% and 11.8%, for the FY11 and FY12, respectively,

Retail is on the mend. Consumers are buying again. According to Retail Metrics, sales data from the 30 retail chains followed grew 5.8% in November, representing the 14th straight increase and well above the estimate of 3.5%.

Black Friday and Cyber Monday were outstanding.

What has been impressive has been the demand for luxury goods, including strong results from Tiffany & Co. (NYSE/TIF) and higher demand for expensive vehicles.

The key, as I have said, is for a strong holiday sales season that could drive a Santa Claus Rally extending into the New Year. Sales heading into the holiday season also look encouraging given the stronger-than-expected Consumer Confidence Index for November. The confidence reading is critical, as it suggests that consumers are positive.

It does appear a reversal may have occurred in retailing. The key is to look for same-store sales growth in retailers that sell non-essential goods. Increases here could mean consumers are spending on goods and services that are non-essential. These include electronics, appliances, furniture, autos, and other big-ticket items.

My favorite in the retail space continues to be the discounters and big-box stores. The big-box stores are now selling a broad range of electronics and are adding to their product line. This will offer consumers a one-stop place for shopping.

ABOUT THE AUTHOR

Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors.