Lowes Companies Stocks

Muted Retail Growth to Move Higher? How to Play the Sector Minus Risk

By George Leong for Daily Gains Letter | Feb 27, 2015

Retail Growth to Move Higher Retailers continue to fight for the limited dollar of the consumer. The retail sector is extremely competitive and success is contingent on the right strategy of attack, which means offering the right product mix, competitive pricing, and in the ultra-competitive apparel sector, it means keeping on top of the trends and consumer sentiment.

A good product today could be passé a year from now, as consumer sentiment changes rapidly.

Why Target Failed in Its Canadian Expansion

Target Corporation (NYSE/TGT) beat Wall Street estimates on Wednesday, despite recording a massive $5.1-billion charge after deciding to exit Canada in what has to be one of the biggest blunders in retail history. The reality is that it wasn’t the Canadian consumer sentiment that choked Target, but the company’s mistake in its expansion plans, the first outside of the United States.

Other major retailers, such as Wal-Mart Stores Inc. (NYSE/WMT), The Home Depot Inc. (NYSE/HD), Lowes Companies, Inc. (NYSE/LOW), The Gap, Inc. (NYSE/GPS), and Best Buy Co., Inc. (NYSE/BBY) to name a few, have managed to expand successfully in Canada after understanding the consumer sentiment there.

Target simply did a bad job in not only its expansion after buying up locations via its purchase of troubled Zellers, but also its exit. The company operated poorly in Canada and failed to grasp the consumer sentiment there. My view is that Target should’ve kept some of its own developed stores in good locations and made the experience better for the Canadian shopper. It didn’t, so here we are. Projected sales growth of 1.6% for FY16 doesn’t offer much comfort.

Retailers Stalling, but Could Edge Higher

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Strong Jobs Market to Benefit Housing and Retail? How to Profit

By George Leong for Daily Gains Letter | Jan 12, 2015

Strong Jobs Market to Benefit Housing and Retail We received great news last week after the reporting of strong jobs numbers in December that capped off a good year in which the country created more than 2.5 million jobs. In December, 252,000 new jobs were created, driving the unemployment rate down to a pre-recession low of 5.6%. The numbers for new jobs created in October and November were also revised higher.

With gross domestic product (GDP) growth at an annualized five percent in the third quarter, there is optimism jobs will continue to be added at the current rate for this year. And as the jobs market improves, the positive action will translate into added confidence for workers and spending. In my view, this will help drive consumer sentiment on cyclical and durable goods.

Moreover, with interest rates and mortgage rates continuing to be relatively low and jobs being created, we have the ingredients for continued strength in the housing market. It’s likely the Federal Reserve will begin to increase interest rates by mid-year, but unless they surge higher (which is very highly unlikely), the rates, by historical standards, will continue to be quite low.

Given this, as an investor looking to profit, you should be looking at sectors that could benefit from the jobs creation and continued low interest rates, namely the homebuilder, home supplies, and retail sectors.

Homebuilders Stocks

The SPDR S&P Homebuilders Index exchange-traded fund (ETF) shows a possible upside break above the 50-day moving average (MA), based on my technical analysis. Just take a look at the chart below.

SPDR Homebuilders Index ETF