It appears that the hiring and business conditions in April
failed to hold consumer confidence - as reflected by a dip in
Consumer Confidence Index (CCI) for the month. The Index's
reading slowed to 82.3, after reaching the highest level of 83.9
(in March) since Jan 2008. However, the short-term outlook for
the economy remained steady as the Expectations Index was almost
unchanged at 84.9 compared to 84.8 in March.
As per the Conference Board, consumers were worried about the
sluggish labor market, which pulled down the Present Situation
Index to 78.3 from 82.5 last month. Respondents who perceived
"plentiful" jobs fell to 12.9% from 13.8% whereas those who
considered jobs as "hard to get" rose to 32.5% from 31.4%.
Volatile stock markets, rising crude prices and slowing housing
market growth are primarily responsible for this subdued consumer
confidence. The S&P 500 fell over 2.7% in January, grew 6.7%
in February and 1.4% in March and remained almost flat in April.
Further, frigid weather and geopolitical tensions escalated
to new highs. For the January-March period, crude oil swung
between lows of $91.25 per barrel to highs of $105.22 per barrel,
staying above the $100 per barrel mark for quite some time.
Housing growth slowed in February as per the Standard &
Poor's/Case-Shiller 20-city home price index survey. The reading
came in at 12.9% in February, down from a 13.2% gain in January.
To add to the concerns, the current job data turned out to be
conflicting. The report stated better-than-expected addition of
288,000 jobs in April and unemployment rate falling below the
threshold limit to 6.3%. However, as per sources, the apparently
good report was due to a lesser number of people looking for
jobs. People not looking for jobs are not considered unemployed.
Falling consumer confidence is not good as consumer spending
constitutes over two-thirds of the U.S. economic activity.
We believe this not-so-upbeat consumer sentiment will directly
hit the Retail sector. Therefore, it might be a good idea to dump
some retail stocks that are likely to underperform in the
Similar to wise buying decisions, exiting potential
underperformers at the right time helps maximize portfolio
Here we have handpicked 3 such Retail/Wholesale stocks that look
expensive, hold an unfavorable Zacks Rank and have been recently
witnessing downward estimate revisions:
Family Dollar Stores Inc.
): This department retailer carries a Zacks Rank #5 (Strong Sell)
and has witnessed a massive downward revision in the last 30 days
following the dismal second-quarter fiscal 2014 performance. The
Zacks Consensus Estimate has gone down 7.6% for fiscal 2014.
Moreover, the valuation looks expensive as the stock is trading
at an 11.2% premium to the peer group average in terms of forward
P/E ratio. Further, long-term EPS growth rate of 9.1% is
significantly lower than the peer group average of 12.3%.
Another such stock that you may consider dropping is electronics
), which has witnessed a significant price decline after posting
a weak third quarter fiscal 2014 performance on Jan 30, 2014.
Subsequently, the Zacks Consensus Estimate has gone down over 73%
for fiscal 2014.
A Zacks Rank #4 (Sell) further confirms weakness in the stock.
The stocks trades at a substantial premium to the peer group
average in terms forward P/E ratio. Also, it has a long-term EPS
growth rate of 3.1%, which is significantly lower than the peer
group average of 14.8%.
FAMILY DOLLAR (FDO): Free Stock Analysis
HHGREGG INC (HGG): Free Stock Analysis Report
NOODLES & CO (NDLS): Free Stock Analysis
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Noodles & Company
), which operates in the fast-casual restaurant sector, has seen
a 4% decline in the Zacks Consensus Estimate for 2014 over the
last 30 days, after reporting in line first-quarter 2014 results.
Moreover, this Zacks Rank #4 (Sell) stock has a expensive
valuation as it trades at a forward P/E ratio of 69.7 compared
with peer group average of 22.6.
The fluctuation in economic data and consumer confidence may not
turn out too badly for the retail stocks, but these 3 stocks have
high chances of losing in the near term as their fundamentals
So, if you are holding any of these stocks, don't wait much to