How can retail stocks survive?

[anxvariety]

.. during any sort of tightening of the money supply or ez-credit-ending housing bust?

This has been covered.. but I’m interested in hearing more opinions.

KB Homes(KBH) and Accredited Home Lenders Holding(LEND) are trading just around their book value and at 4x earnings.. yet stocks like(there are tons more just picking some random ones) DELL, Best Buy(BBY), Bed Bath and Beyond(BBBY), Williams Sonoma(WSM), Circuit City(CC) are trading in the 15-20x+ earnings and are mostly 200% above their book value.

How can we expect any of those companies to grow or even maintain the growth they experienced during the last 10 years of easy money? Within your expecation for the relationship between retail in general and credit availability how do you think stocks like the one’s listed above will perform?

I don’t look at investing as something simple or any hypothesis to be a slam dunk nor am I suggesting these measurements are more important than another – just interesting factors… just a useless disclaimer!

[cabinboy]

Growth via globalization. Some of the brands you listed are already global (Dell). Others are not, and have not needed to be given the loose proclivity of the U.S. consumer. If U.S. spending goes down, these folks are going to have to grow by looking elsewhere. With any luck, they’ll do it more efficiently than folks did in the early 90’s, since there are many executives and consultants floating around that will be doing it for the nth time.

Clearly, KBH is not going to be able to capitalize in this way. Other brands will be able to. The ones that will survive will globalize. Look at IKEA and Microsoft.

[poorgradstudent]

I’d imagine that there is going to be some softening in the retail sector that the market hasn’t factored in yet. Most of what I’ve read suggests that in a recession it’s high end retailers that suffer. People will still buy toilet paper and deodarant from Target or Walmart (in fact, in a mild recession discount retailers may actually increase market share as more high end consumers feel a price pinch and “scale down” their spending). Places like Williams Sonoma and Restoration Hardware will likely see sales slumps.

“Survive” might be an overstatement. In theory recessions encourage efficiency, and while this is a bigger bubble than in the past, I don’t expect you’ll see too many retailers go under.

In general you should be cautious about any stock trading well above its book value. Sometimes there’s a good reason, so I guess you just have to go on a case by case basis.

[powayseller]

How forward looking is the stock market? Two weeks? One month?

[anxvariety]

OK I bought some puts on a couple of the stocks I listed and I am getting absolutely roasted on these and a few others!!! We’ll see how it turns out! Two of the underlying stocks for the options I bought are rallying like crazy(kilin’ me!)!!!!! See: Bed Bath and Beyond(BBBY) and Best Buy(BBY) are on a complete tear!!!!

..but this is usually part of options trading.. volatilately comes in two flavors losses or gains so uhh I have to stick to the plan!

[powayseller]

anxvariety, it takes real courage to list your losses. I admire that very much! It’s easy to brag about the wins, but owning up to the losses takes a real man. Here’s hoping that more people will share their losses too, because that helps our piggington community learn from each other.

[anxvariety]

Thanks PS.. I’m actually getting most roasted on some OXY calls that I bought, but the two I listed are definitely adding to the uncomfort… The OXYs were actually Zeal reccomended.. I’ll say the book on these isn’t closed yet, but the story is not off to a very comfortable start!

Today is the first time that all of my stocks have been down in one day.. well there is one that is up CHB but very insignificantly..

How can that be, between all my long positions, calls and puts almost 100% of my stocks are down and the DOW is up!!! Definitely stay away from my picks for the time being! 🙂

Over the last couple of weeks I was starting to feel real comfortable with my stocks as they were rising steadily day by day with almost no pullbacks… I thought I had acheived a good balance.. The landscape has changed! No one can be right all the time! 😉

[sdappraiser]

Please start posting your trades before you execute them. I’d love to take the other side for some easy money.

[anxvariety]

Please start posting your trades before you execute them. I’d love to take the other side for some easy money.

Ok. Tomorrows stock is RHWC.OB

[sdappraiser]

Ouch. How did that Best Buy treat you today?

[rseiser]

Hi anx,
I have to join your stock-picking club. I had the same experience in the last two days. It seems all my longs are down and all my shorts are up. Maybe one can interpret this as me being a moron, but I tend to interpret this as the market having gone totally nuts. Just go to etfconnect.com and type in the fund CLM and compare the stock price to its net asset value (NAV) over the last months. Does that make any sense?
Maybe we will reach a peak sooner than later.

[poorgradstudent]

Anx, while I agree with the long term soundness of some of your shorting strategies, remember that we’re not in a recession yet, so your one week returns probably aren’t going to be very exciting. Honestly, I think retail will be ok through the holiday season, where consumer (over)spending will prop up the economy for one last hurrah.

rseiser, I think you’re right that the market is a little crazy right now. There’s a ton of anxiety thanks to the expensive ongoing war in Iraq, the posturing of Iran, and the tropical storm season (which is ending). Everything’s pretty volatile right now, so the short term is going to be a little crazy.

[anxvariety]

Ouch. How did that Best Buy treat you today?

Probably not good.. but my puts are for next year, so I’m not going to worry about it until at least the beginning of 2007.

[PD]

I have Best Buy puts too. 🙁
Most of my other options are in the black (some just barely) so I’m still doing okay overall. I’m short some homebuilders but did it a couple of months ago and am solidily in the black there too.
Maybe we were a little too early with Best Buy? I prefer to think that their increase in earnings were the last crazy gasp of the housing bubble. People see financial doom in front of them and at least want to be able to watch it unfold on a brand new plasma TV…

[sdrealtor]

I need to buy 3 computers for another business start-up I’m putting together. I’ll stay away from BBY.

[Author]

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