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Short sellers who bet against retail this year seem to have made a big mistake. Over the past few months, almost all of these stocks have soared higher after an unexpectedly strong fourth quarter of 2009 and continuing sales strength in 2010. Things are so good, in fact, that Cramer’s seeing mini-bull markets in practically every niche, from apparel and footwear to consumer electronics and high-end handbags.
This trend deserves your attention. And whether it’s through the return of the M&A market, a newly confident consumer or a visionary CEO, there are plenty of ways to play it. Of course, Cramer has his favorites, which we’ve pulled together into this slide show. Read on for his top 12 resurgent retail stocks.
When the market takes up the stock of the acquirer in an M&A deal, that’s a sign of strength. Such was the case when Phillips-Van Heusen recently bought Tommy Hilfiger for $3.1 billion. PVH immediately popped 10% and then reached to within a dollar of its 52-week high as the Federal Trade Commission approved the closing the deal.
At the time of this story’s publishing, Cramer was a big fan on the stock, but he recommended waiting for a pullback before buying. He expects one when the company holds a secondary offering just before the Tommy transaction closes in the second quarter. Though there is a chance, Cramer said, that it could come sooner. Investors should be ready for it.
Read more about Phillips-Van Heusen’s growth prospects here.
J. Crew is a “top-notch, best-of-breed retailer” that’s “firing on all cylinders,” Cramer says. Who’s behind the strong performance? CEO Mickey Drexler. He’s bringing to JCG the same vision he used to turn around the Gap and launch its Banana Republic and Old Navy stores. As long as Drexler’s at the helm, Cramer says, investors should seriously consider J. Crew.
Click here for Cramer’s latest on J. Crew.
Speaking of great CEOs, Cramer’s a big fan of Macy’s chief exec Terry Lundgren, too. One of the keys to his success is his focus on the consumer. That led to the “My Macy’s” initiative, which aims to localize each store’s products so as to better serve area customers. It’s paying off: In the fourth quarter of 2009, the 10 top performing Macy’s stores in the country were part of the My Macy’s pilot program, Lundgren says.
Click here for Cramer’s most recent interview with CEO Lundgren.
The shoe-stock bull market is on, and Nike is Cramer’s favorite name in the group (though two other greats are included in this slide show). Goldman Sachs recently pointed out that Nike in the past decade has enjoyed two periods of big gains that lasted for multiple quarters, and both came in a period of earnings acceleration. Well, that’s just what the company reported last quarter – an earnings beat thanks to increased sales. Cramer said there’s a good chance the hedge funds will rush to NKE as soon as the earnings growth hits double digits, and that will push up the share price.
Nike has a number of important catalysts coming up this year and beyond. Click here to find out what they are.
Sales were up across the board when Skechers reported its fourth-quarter results in February, and management expects that growth to continue. In fact, they said their prediction of a 30% rise in sales in the first half of 2010 was conservative. All that and the stock is cheap, too: At pub time, SKX was trading at just 12.7 times next year’s earnings, a discount to its 15% long-term growth rate. (Remember, Cramer’s definition of cheap is any stock that trades at or below that growth rate.)
Click here for more on Skechers USA.
You may not recognize the company name, but you almost certainly know the shoe: UGGs. The uber-popular boot continues to sell, and it was a big earnings driver in the fourth quarter of 2009. Cramer thinks the introduction of UGGs seasonal lines could extend that earnings power. Best of all, though, Deckers is now selling directly to customers. This, too, played a major role in the company’s better-than-expected quarter, and it should help DECK meet the 2010 guidance it increased in February.
Read more about Deckers Outdoor here.
Cramer recently recommended Ross Stores for its sizable dividend hike – 45% in 2010. This is a growth story, too, though. ROST’s presence comprises 1,000 stores just 27 states, but management is fully intent on bumping that first number to 2,000.
Click here for Cramer’s full report on Ross Stores.
To survive the horrible downturn everyone faced over these past few years, Coach Chairman and CEO Lew Frankfort told Cramer in an interview, the company had to get with “the new normal.” As a result, Coach “designed into lower price points” when it realized that spending wouldn’t return to its previous levels. The result? Starting in July 2009, the company’s newest handbags and accessories hit the market 15% cheaper than their counterparts the year before. Frankfort said the change in strategy has played a big role in the company’s recent strong performance.
Watch Cramer’s full interview with CEO Frankfort here.
If you’re going to play a rebound in the housing market, Cramer says, Home Depot right now works better than a homebuilder. Between the improvements needed to sell a house and those made to the newly purchased, this store should see plenty of business. Cramer also likes the 2.9% dividend yield, and he thinks the stock goes to $40.
Downturn or not, pet owners are willing to shell out big bucks to keep their companion animals happy. According to the American Pet Products Manufacturers Association, US pet industry expenditures jumped $2.3 billion to $45.5 billion in 2009 from the year before. And the number should reach $47.7 billion in 2010, the group said. One of Cramer’s favorite plays on the group is PetSmart, America’s largest pet-food retailer.
Watch Cramer’s full report on PetSmart, and another pet-friendly play.
Cramer has talked endlessly about how much he likes this company, but the most recent reason offered was the economic turn in California. The state, which boasts the world’s eighth-largest economy and represents 13% of America’s gross domestic product, is showing signs of a recovery, as the housing and retail markets improve and the population starts to grow again. Costco runs 28% of its 599 warehouses in the state, and these outlets account for 35% of the company’s sales. The problem? None of this is reflected in the share price yet. Cramer thinks it won’t be long before it is.
Click here for Cramer’s most recent report on Costco.
In early March, Cramer put American Express, then at $40, on his list of the 10 stocks that would decide whether or not the Dow crossed 11,000. When this story was published in early April, AXP was up to almost $43 and the Dow was a mere 50 points from that key level.
Cramer likes the company because of its strong performance in the most recent quarter, its successful handling of new credit-card legislation, a thriving retail environment and the return of corporate travel. His price target for AXP remains at $45.
Read more about the 10 stocks the Dow needs to cross 11,000.