Retail stocks perking up

After spending months in the wilderness, consumer names are on the move again.

By Anthony Mirhaydari Feb 4, 2011 7:01PM

It's no secret that I've become increasingly skeptical about the quality and longevity of the current market rally. My recent columns and blog posts will attest to that. But I won't deny positive signs when I see them. And I see plenty of good things among retail and consumer stocks right now.

 

Just look at the recent action in the Retail SPDR (XRT), which holds stocks like GameStop (GME) and JC Penney (JCP). The XRT is up 4.6% from its Monday low and looks to be in the midst of initiating a new uptrend. Various technical indicators are moving into positive territory for the first time since December.

 

Although there are concerns about rising input prices -- especially for cotton -- pressure margins in the sector, fourth-quarter earnings have been solid. And compared to more defensive consumer staples stocks, retailers are moving higher at a pace not seen since last September. Can the momentum continue?

 

 

Of the consumer discretionary stocks in the S&P 500 that have reported Q4 results so far, 76% have reported better-than-expected results; compare that to the 72% beat rate for the overall S&P 500. The good news from the holiday shopping season is carrying over into the New Year: According to Thomson Reuters, its January Same Store Sales Index registered a 4.2% gain for January, beating the 2.7% estimate and January 2010's 3.3% increase.

 

According to Thomson Reuters analyst Jharonne Martis-Olivo, a reading of 3% "generally signals health among U.S. consumers, thus 4.2% is very robust" and corroborates recent increases in consumer confidence. Overall, 68% of retailers beat expectations despite the month's difficult winter weather.

 

One of the best performers was Limited Brands (LTD), whose stores include Victoria's Secret and Bath & Body Works. Same-store sales increased 24%, smashing estimates of 6.7%. Lingerie was apparently a hot commodity, as sales at Victoria's Secret leapt 35%.
Solid results are driving investors back into the sector, relieving months of underperformance against the broad market.

 

Here's a look at a few stocks that, along with Limited Brands, are showing promise:

 

AnnTaylor Stores (ANN), a retailer of specialty women's apparel, is moving up and out of its most severe oversold condition since last July on good volume.

 

Tiffany and Co. (TIF), the iconic jewelry house, jumped both its 20-day and 50-day moving averages over the last few days -- a feat that hasn't been seen since September.

 

American Eagle Outfitters (AEO), a teen retailer, looks ready to move up and out of a five-month consolidation pattern.

 

Disclosure: Anthony does not own or control a position in any of the companies or funds mentioned. He has recommended XRT to his newsletter subscribers.

 

Be sure to check out Anthony's new investment advisory service, The Edge. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up.


The author can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.

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