3 big retailers to dump now

Wal-Mart's shares tumble on a weak outlook. That means other store chains are also vulnerable.

By Traders Reserve Feb 21, 2014 2:18PM
Target store in San Bruno, California /Justin Sullivan/Getty Images By Jamie Dlugosch


I love this kind of stock market. Beating the indexes is a piece of cake.

Why? Because it's a stock-pickers market, and if you know what you are doing you can make money by owning stocks going up and selling stocks going down.


On Thursday, shares of Wal-Mart (WMT) fell nearly 2 percent thanks to the company reducing its outlook due to falling sales.

Blame it on the weather or blame it on the weak economy that is supposed to be strong. Whatever the reason for the poor performance, it is not a good situation, considering Wal-Mart's excessive valuation.


There's your opportunity on the short side. Find a stock that is trading for a premium valuation that is likely to miss expectations. The results to the downside can be spectacular.


For Wal-Mart, a 2 percent loss on a day when the rest of the market traded higher is more like losing 5 percent. More losses are likely to follow.

If Wal-Mart is vulnerable, other retailers are likely to disappoint and fall as well.


I think the retail sector is quite vulnerable at the moment. At a minimum, poor weather will like blanket the industry like a cold, wet snow.


Here are three retail stocks I would dump now:


Target (TGT)

Target is at the top of my list of retail stocks to dump now. The poor performance at Wal-Mart had investors selling Target shares in sympathy on Thursday.

But Target has even bigger problems than Wal-Mart. Target's credit and debit card breach may be fading from the headlines, but investors can expect the impact of the incident to linger. Yet unknown is the full impact on Target's earnings and more importantly, customer traffic.


Look for same-store sales at Target to be below consensus. In addition, I think a warning and downward guidance of some magnitude is forthcoming and yet to be priced into the stock. This one is toxic and should be avoided or dumped now.


Whole Foods Market (WFM)

Shares of Whole Foods were dumped en masse after earnings were released recently. The stock had no chance, being priced for perfection in an environment that was far from perfect.


There is much more risk to the downside. The fallacy of the model is the idea that somehow Whole Foods could change the razor-thin margin dynamic of the grocery industry. Yeah, right! I'm skeptical and would never pay the exorbitant price Whole Foods is still valued at today.

Analysts expect the company to grow profits by 18 percent from the current fiscal year ending Sept. 30, 2014 to the next. At current prices, shares trade for 32 times current fiscal year estimated earnings. We are witnessing the slow collapse of the model here and I would dump this one before things deteriorate further. 


Coach (COH

Economic competition is fun to watch. In our system of capitalism there are winners and losers in every industry.


In the retail space, watch the battle royal brewing in the luxury-goods category. Michael Kors (KORS) is the hot new kid on the block and it is taking aim at the old-school luxury accessory company, Coach. Fashion is fickle, as they say. Now you can make hay by betting against the loser in the race -- Coach.


Since last summer, Coach shares have really taken a hit. They can and will likely decline further. Growth is slowing dramatically. Analysts expect the company to grow profits by 9 percent from the current fiscal year ending June 30, 2014 to the next. At current prices, shares trade for 15 times current fiscal year estimated earnings. The big fear is if Coach has to respond to the competition and declining sales with margin-killing discounts. If so, the bottom could fall out. I would dump this one now before that happens.


More from Traders Reserve



Feb 21, 2014 3:27PM

"WASHINGTON - Federal Reserve officials agonized throughout 2008 over how far they could go to stop a financial catastrophe that threatened to pull the economy into a deep recession, transcripts of the Fed's policy meetings that year show.

"We're crossing certain lines. We're doing things we haven't done before," Chairman Ben Bernanke said as Fed officials met in an emergency session March 10 and launched never-before-taken steps to lend to teetering Wall Street firms."

THEN he stepped back from the mike and pledged to his banksters that Americans would PAY for being savers and reading the fine print legalese, and prepared to roll-out the biggest corruption act in Man's History.  

Feb 21, 2014 3:27PM
ONE really corrupt Exchange Banger you should dump now... WALL STREET. 
Feb 23, 2014 2:36PM
Wall Street has evolved into a sophisticated Casino. It's not what it used to be and that wasn't all that great either. 
Feb 23, 2014 5:42PM
Boatloads of crappy chineazze products will continue to smother US.  Soon all that will be left is dollar stores.
Feb 23, 2014 7:53PM

Obamaville's economy continues to founder.  Should we just continue to blame Bush?

Feb 23, 2014 8:43PM
Why are you blaming either one of them....???
Feb 21, 2014 5:21PM
Your an idiot if you dump Target unless you need the money. After the crash they will be back up above $70.
Feb 23, 2014 1:04PM
That's correct. Buy into all the luxury goods  market because for the last 10 yrs the Fed has been very good to Wall St. Middle & lower class stores will obviously do poor...no money to spend. Cheer up! The Fed is still pumping 65 billion a month.
Feb 23, 2014 1:35PM

Wall Street does not exist in the same context that it did even 20 years ago. All of Wall Street is corrupt and the White House does a dance like a puppet on a string. There are only a hand full of Wall Street investors who still play by the long ago "rules of the stock room",  They are all crooks and Washington will do anything to protect them because they are washing each others backs on a daily basis.


The best thing that ever happened to this country was when Wall Street went black in the 30's. It should happen again just to remind Congress that Wall Street is NOT a God, it is the devil.

Feb 23, 2014 3:41PM
The Market was a good idea at one time.  Then the very rich became the obscene rich.  Now it's just a distraction for the financial royals.
Feb 21, 2014 5:14PM
Like we said earlier, manipulators coming off 2 bad weeks for them, be careful this last  hour and what happened? They did their thing and brought us down....Not a whole lot but  they did it anyway....Oh well, we know what we are up against with these cheating dirt bags down here...Not a bad week overall....Have a great weekend all, we will do it again next week.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.