Historically, the Christmas season has been abullish time
forstocks . However, analysts who projected 3-4% growth in retail
sales during the months leading up to Christmas failed to consider
the negative effect Fiscal Fliff fears would have on consumers. The
uncertainty has resulted in consumers not spending as expected
during the holiday season.
But to paraphrase Mark Twain, rumors of the retail sector's
demise have been greatly exaggerated. Spending still increased,
albeit slightly, and there are still goodstock picks to be had in
As a matter of fact, I have my eye on two...
But before I get to that, I want to point out that despite being
slow, retail sales were still growing amid the fear of highertaxes
and lower government spending fears.
And I take this as a bullish signal for 2013. Now that the
fiscal cliff situation is resolved, consumers could likely kick
into high gear, pushing retail higher in the first half of
I was happy to discover that I am not the only one who is
bullish on the retail sector currently, when I learned several
hedge funds share my retail sector bullishness, particularly
Stephen Mandel''s Lone Pine Capital. Thishedge fund has become
heavilyweighted with retail stocks. According to the latest SEC13F
filing, five of Lone Pine's top 20 holdings are in the retail
Here's a closer look at two of its holdings.
1. Dollar Tree (Nasdaq: DLTR)
Lone Pine currently owns 11.8 millionshares of this discount
retailer, resulting in more than 5% ownership. In the third fiscal
quarter of 2012,revenue advanced 8% during the same period in 2011.
Comparablenet sales climbed 1.6% to a little more than $1.1 billion
andEBITDA exploded higher by 49% to almost $245 million. The stock
is currently trading at around 16 times trailingearnings with abeta
of 0.02%, which shows it clearly doesn't care whether theeconomy
improves or not.
However, itwill not take much of an increase in consumer
confidence to push shares higher. Ultra-discount stores are known
as being shielded from negative fluctuations in the economy. Other
hedge funds such as Blue Ridge Capital and Renaissance Technologies
also added shares of Dollar Tree to their holdings last quarter.
Not to mention a 5,000-share purchase by a company director in
Although the stock price was lower during 2012, shares have
rocketed nearly 400% in the past five years on the back of
growingcorporate profits . It appearsinsiders and hedge funds are
in this stock for the long term based on its historic performance
rather than the short term. This is a huge positive for
Technically, shares have built a base at support in the $38
range. Price has bounced up to the 50-day simplemoving average ,
setting up an ideal breakout entry situation. Buying on a daily
break out close above $40 a share with a 12-month target of $47
makesinvestment sense right now.
2. Michael Kors (
Lone Pine also owns on the other side of the consumer spectrum with
8.8 million shares of fashion house Michael Kors. In the fiscal
quarter ending in September 2012, revenue soared 74% to about $1.7
billion andnet income exploded higher by 114% to just over $240
million compared with a year earlier. The stock price has reflected
the growth by advancing more than 100% in the past year, sharply
outperforming the S&P 500, Dow Jones Retail TitansIndex
(DJTRET) and the Dow Jones U.S. Apparel Retailer Index
The company has amarket cap of close to $10 billion and a return
onequity of nearly 45%, making it a solid player in the high-end
Technically, shares have pulled back into the value "buy" zone,
finding support in the $48 range. The stock is a good buy now with
a 12-month target of $60 a share.
Risks to Consider:
Consumers could remain nervous about tax increases incurred
from the fiscal cliff deal. Having said that, I think fiscal cliff
fears will soon be a thing of the past Always use stops and
position size wisely wheninvesting .
Action To Take -->
I like both stocks listed above as long-terminvestments . Dollar
Tree as a breakout trade above $40 a share with stops at $38 and
Michael Kors in the value "buy" zone with stops at $46 make solid
investment sense for investors looking for exposure in the retail
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