Retail Stocks: No Bottom In Sight

With retail stocks down 11% year to date, you would think some would be out looking to call a bottom, but bearishness remains very high among retail analysts. Morgan Stanley very typical of that mood this morning, was out with a long note on retailers called "Not Too Hot, Not Too Cold, Just Wrong."

Main points:
--"We believe slow drip downside is likely for retail stocks into 2008 despite 07 weakness."
--"07/08 looks to us like the new 89/90, and Street EPS remain too high."
--"We now expect 60% of major retailers to post down margins in 2008, with EPS growth of 9% vs. Street at 14%. We expect sales growth of 2.5% in '08 (vs. 4% in '07), not to a recessionary <1%."

The problem is the usual suspects: lower home prices, slower job growth, and higher oil. They downgrade Nordstrom , despite the nearly 30% drop since it's mid-October earnings warning, saying "we do not believe current valuations fully discount 1) a weakening "trade-up" consumer, 2) heightened inventory risks, 3) a declining margin cycle, and 4) deteriorating returns." Down 3% today.

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