Retail's November Surprise - Trading Tactics for December 13, 2006
The Headline Today Reads...
The headline today reads "Retail Sales Surge in November."
That's certainly true of you define "surge" as a 1% rise. But I'd define it more as a "surprise."
You see the 1% rise in retail sales in November was ten times better than the 0.1% rise that economists had been forecasting - and it marked the best gain since witnessing a 1.4% increase in July. The 1% pop was even more encouraging because it followed three straight months of unimpressive performance... as sales were down in September and October and flat in August.
Retail sales are considered such a key indicator because consumer spending accounts for two-thirds of our total economic activity. That's HUGE.
When you look at the retail segments, you'll notice that sales at auto stores posted a solid 0.9% percent increase on the heels of their 1% pop in October. This makes a strong case for names like AutoZone Inc. (AZO:NYSE) and Genuine Parts Company (GPC:NYSE).
Department stores also came in strong, posting a 0.4% rise in November after falling 0.3% in October. This bodes well for names like JC Penney Holding Co. (JCP:NYSE) and Kohl's Inc. (KSS:NYSE).
On the weaker side of the coin are furniture stores, which lost 0.1% on the heels of a 0.7% fall in October. That makes a bearish case for names like Ethan Allen Interiors Inc. (ETH:NYSE), La-Z-Boy Inc. (LZB:NYSE) and Furniture Brands International (FBN:NYSE).
So, if you were to gather together a basket of retail stocks for the next two to three months, I'd overweight the auto sector, followed by a position in a department store, while staying away from the furniture sector altogether.