Rustling Through the Bargain Bin for Retail Stocks - Holiday Central

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ABOUT THIS BLOG

It's a make-it or break it time for retailers. The holiday selling season is always a critical time for retailers, but this year this may be even more true. With several retailers already falling victim to a drop in consumer spending, and filing for bankruptcy, retailers will be navigating through some tricky waters. Consumers are strapped for cash due to high energy and food prices, and unemployment is rising. The recent credit crunch has made it more challenging for retailers and consumers to borrow.

This blog will look at the winners and losers in the retail space. Who has the right strategy to capture consumer dollars? It also will look for trends in consumer spending and how that will impact the economy.

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Dec.01

3:48 PM ET

Monday, 1 Dec 2008

Rustling Through the Bargain Bin for Retail Stocks

Posted By:Christina Cheddar Berk

Topics:Stock Market | Bankruptcy | Consumers | Retail Sales

Sectors:Retail

Companies:Kroger Co | CVS Corp | Wal-Mart Stores Inc | Gap Inc

Sweet deals inspired shoppers to hit the mall this weekend, but it doesn't look like the buying binge was enough to save the holiday season.

For investors trying to look beyond the holidays, the picture is grim.

"If you look at P/E's they look very low by historical measures, but there's been no recession like this before," said Neil Currie, an analyst at UBS.

"I think the 'E' part of 'P/E' is very uncertain," he said, referring to the lack of clarity into earnings in a price-to-earnings multiple, which is a common way to judge a stock's value.

According to Currie, the worst may be yet to come. He expects to see bankruptcies and a further slowdown in consumer spending.

"The real difficulty comes in '09," Currie said. "At least people have a reason to spend right now. They're not going to spend as much as they spent last year, but they are going to spend. After the end of this holiday period, I don't know what the catalyst is for people to going out to the stores. Gift cards are going to be down year over year. President's week is going to be very low. I think right through to the summer we're going to see disastrous numbers."

Currie favors retailers such as Wal-Mart Stores [WMT Loading... () ], Kroger [KR Loading... () ], and CVS [CVS Loading... () ] in this environment.

It's been tough for retailers for a while, and this year's holiday season is expected to be the weakest in several decades.

Earlier Monday, the National Bureau of Economic Research said that the U.S. slipped into recession in December 2007. But Citigroup retail analyst Kimberly Greenberger said she would have put the start of the retail recession even sooner than that; in September 2007, when buying began to slow for some discretionary categories such as adult apparel.

One stock Greenberger likes is Gap [GPS Loading... () ]. She owes her opinion to a combination of factors, including valuation and the company's strategy for this holiday season.

According to Greenberger, the company's Old Navy stores went back to their roots this holiday season with a strong message of value, which should resonate well with price-sensitive consumers.

Gap also has some "select and smart" promotions, she said. One example she cited was a "buy one, get one 50 percent off" deal on sweaters that ends today.

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