Retailers may be licking their wounds but if you’re a shark you could make a killing trading their stocks. That's because retail sales plunged far more than expected in December, ending a dismal holiday season with a record sixth straight monthly decline.
Specifically, the Commerce Department reported Wednesday that retail sales dropped 2.7 percent last month, more than double the 1.2 percent decline that Wall Street expected.
The weakness in consumer spending has left many retailers in dire straights. This week alone, regional department store chain Gottschalks put itself up for sale and said it had filed to reorganize in a Chapter 11 bankruptcy, discount clothing chain Goody's Family Clothing also filed for Chapter 11 bankruptcy protection, and luxury department store retailer Neiman Marcus said it was cutting about 375 jobs.
Macy's last week said it will close 11 underperforming stores in nine states, affecting 960 employees. The department-store operator also lowered its forecast for the fourth quarter after one of the weakest holiday seasons in years.
How should you trade?
“I would shortSears ,” says Jeff Macke, “that is, if you can borrow it for a short. I don’t think the stock should be above $10. Or you could buy puts but the premiums are pretty high. And I jettisoned my position in Wal-Mart ,” he adds.
“I’d short Sony,” adds Tim Seymour. “They’re major exporters and I think the stock will continue to decline as the yen gets worse.”
“Maybe look at a pairs trade,” muses Macke. “Short Sony and long Toyota .”
Pete Najarian has his eye on Whole Foods . “I think they have a P/E level that’s way too high.”
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Trader disclosure: On Jan. 14th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (TM), (DIS), (MSFT), (SDS), (AAPL); Adami Owns (AGU), (C), (BTU), (GS), (INTC), (MSFT), NUE); Seymour Owns (BAC), (EEM), (F), (TSO), (AAPL); Najarian Owns (HSBC), (MSFT), (MS), (CSCO), (XME); Najarian Owns (DNA) Calls, (NVLS) Calls, (NVDA) Calls; Najarian Owns (C) Puts; Najarian Owns (CSCO) Short Calls; Najarian Owns (MS) Short Calls