Retail is right, Cramer said on Monday's Mad Money. There's no doubt this hasn't been the case of late. After all, Wall Street seems to think the consumer is down and out, and with them goes the entire sector. But Cramer said the wind is changing – literally – and if the Fed cuts rates this week as he expects them to, then it might be time for retail's return.
In addition to this week's possible cut, Cramer thinks there will be another easing before the year is out as well. The last time the Fed went on an "easing binge" retailers had big wins two out of the three times, he said. The lower rates make borrowing easier, and, as a result, there's more cash flowing around. That's good news for retail.
And believe it or not, according to Cramer, this recent cold snap is good for business. After an extended Indian summer, now consumers are stacking up on winter gear, which is, again, good for business.
So how should investors play it? Go high end, Cramer said. Typically, it's the high-end players, like Ralph Lauren and Nordstrom, that bounce back first. The customers that shop there are the ones who have the least to worry about.
Both RL and Nordstrom are down big – RL, 33% since its July 6 high, and Nordstrom 21% just since Oct. 5. Cramer said these stocks have been priced for catastrophe, but if the rate cuts come, that catastrophe shouldn't happen. He knows both companies have missed numbers and lowered guidance in the past, but the stocks are too cheap, he said.
Both Ralph Lauren and Nordstrom are trading at about the same multiple as their long-term growth rate (RL at 12.3 versus 12%, and Nordstrom at 14.5 versus 16%). But the typical luxury retailer trades at about 20 to 25 times next year's earnings, Cramer said. With a 25 multiple, Ralph Lauren would jump to $118 from $69. With a 20 multiple because of its slower growth, Nordstrom would be priced at $64 instead of $39.
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