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Stock Up On Underwear

Wal-Mart's earnings reveal that they are having to pay more to produce clothing. How should you trade retail if China isn't the low-cost producer it once was?

Wal-Mart raised its full-year earnings forecast Thursday after second-quarter profit rose more than expected, helped by tight inventory controls and a renewed focus on low prices that is attracting financially squeezed shoppers around the world.

But the world's largest retailer predicted slower sales growth at its established stores in the U.S. for the current quarter, as the benefits of the federal stimulus checks dry up and customers find it more difficult to stretch their paycheck to the next payday.

Like other retailers, Wal-Mart is also confronting inflationary pressures from fuel, food and labor that are raising the costs of goods. Wal-Mart's earnings reveal that they are having to pay more to produce clothing.

How should you trade retail if China isn't the low-cost producer it once was?

America is more addicted to cheap clothing than they are most anything else, explains Jeff Macke. And China has become America’s factory for cheap clothing. But China is experiencing a surge in its standard of living. Something’s got to give. And I think it gives in the margins for discounters.

I wouldn't worry too much. Wal-Mart always finds efficiencies, counters Pete Najarian.

I think the retail trade is long Target for the second half of the year, adds Guy Adami.

















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Trader disclosure: On Aug 14, 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 (COST), (DIS), (MSFT), (WMT), (UUP); Adami Owns (C), (GS), (INTC), (BTU), (AGU), (MSFT), (NUE); Najarian Owns (AAPL), (NOK), (TSO), (XTO); Najarian Owns (WPI) Calls, (ONXX) Calls, (MRVL) Calls, (CSCO) Calls; Najarian Owns (BGG) Puts; Finerman Owns (GS); Finerman's Firm And Finerman Own (C) Leaps; Finerman's Firm Owns (JCP), (MSFT), (NOK), (SUN), (TSO), (VLO), (MO); Finerman's Firm Is Short (IYR), (IWM), (SPY), (IJR), (XLF), (BBT), (COF); Finerman's Firm Owns (ANF) Call Spreads; Finerman's Firm Is Short British Pound