NOTE: Every week I write a Client Note for my clients. For a limited time, I am allowing non-clients to sign up and receive the Client Note. You can sign up at the top right hand corner of the website. I will also be posting the notes on my blog with a 24-48 hour delay from time to time. Here is this week’s.
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Last week I wrote about how impressive 4th quarter tech earnings were from Intel, Cisco, Hewlett Packard and EMC. A bunch of retailers reported recently and the same thing applies there.
One quick tell I use on consumer spending is to compare same store sales for Walmart versus Target. If you look at the attached chart, you can see that Target notably outperformed Walmart during the boom with consistent quarterly same store sales growth around 5%. The Wall Street Journal took note of this trend in a fascinating front page story, “Walmart Era Wanes Amid Big Shifts In Retail”, on October 3, 2007.
However, calls for the death of Walmart were premature as shoppers flocked back to the price leader during the Great Recession. As Target’s same store sales plunged beginning in the 4th quarter of 2007, Walmart’s surged as consumers tried to stretch scarce dollars.
That trend is now beginning to reverse itself again over the last few quarters, with Target’s same store sales rallying, including their first positive same store sales quarter in the 4th quarter in 2 years, and Walmart’s declining, including three straight negative US same store sales quarters.
The trend is confirmed when we look at other retailers who have reported in the last week. Lowe’s and Home Depot both reported improving same store sales trending towards flat. Nordstrom’s and Starbuck’s reported 6.9% and 4% US same store sales increases after more than 2 years of declining same store sales. Whole Foods reported a strong number.
All this clearly confirms that consumers are feeling better and willing to trade up and spend some money. Combined with the tech reports and overall 4th quarter reports, it is undeniable that we are experiencing a recovery.
However, there were recoveries during the Great Depression too, notably the 1936-37 surge which peaked in August 1937 after which things spiralled downward again.
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I want to say a quick word about the market action. Since hitting an intraday low beneath 1050 on Friday February 5, the S&P 500 has put together a nice rally, up about 80 points (8%) over the last four weeks.
However, the volume has been pathetic. Only one day during the entire rally has had above average NYSE Composite volume (Tuesday February 9). Therefore, the action lacks real conviction and suggests we are in a short term range between 1050 and 1150 defined by the January 19 high and February 5 low.
We are willing to base our investment thesis on what we believe is the best management team and strongest franchise in the sector, when it is trading at a fraction of TBV [Tangible Book Value]. – Jeff Harte, “Goldman Sachs…
One of my favorite smaller positions is the leading public egg producer Cal Maine Foods (CALM) – which reported earnings after the close Tuesday. The stock has been going sideways for at least six months now but the fundamentals continue…
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NOTE: Every week or two I wrote a Client Note for my clients. I post the notes to my blog but with a time delay usually between 1 day and 1 week. To receive the Client Notes at the same…
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