(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Short data sourced from Yahoo! Finance. Institutional data sourced from Fidelity.)
The question of the season: Will the Super Committee be this year’s “Grinch That Stole Christmas”?
Consumers are paying close attention to Washington these days as many new proposals, from taxes to healthcare, have had the ability to directly affect their lifestyles. And the more caught up the government becomes in heavy debates, the less confident the American people feel about their economic future.
Now the slow progress of the Super Committee has prompted analysts and retailers to consider the possibility a failure of the committee to negotiate an agreement with Congress will spell disaster for 2011 holiday spending.
Impacts of the Super Committee
The Super Committee, which functions behind closed doors, is charged with the task of finding an additional $1.5 trillion in debt savings over a ten-year period. The plan is to be delivered to Congress by November 23rd, then the proposal will need to be voted on and approved by December 23rd.
There’s plenty of concern going around that the Super Committee and Congress don’t stand a chance of passing a thing. And if they fail on negotiations, it will likely lead people to worry and cut their spending, just as they did during the debt ceiling debate. As you can imagine, retailers are keeping a close eye on Congress.
There are two sides to this. Paul Ashworth, chief U.S. economist at Capital Economics argues to CNBC that “the debate in August could have resulted in the federal government being shut down… If this had happened, federal employees would have been laid off, U.S. contractors wouldn’t have gotten paid, and there were even discussions about Social Security checks being withheld… [But] if the committee doesn’t reach an agreement, automatic cuts will be made across the board affecting areas such as national security and domestic discretionary spending, but a shutdown won’t be imminent.” In which case, spending may dip, but not significantly.
On the other hand, Marshal Cohen, chief industry analyst at NPD Group tells CNBC one of the biggest problems facing retailers is that they have few new and exciting products to offer. Against this backdrop, consumers are distracted with political discussions and wondering how it will affect their income and household expenses. Together, it means consumers feel less inclined to spend an equal or greater amount of money this holiday season as they have in past years.
Surveys confirm an intention among consumers to curtail holiday spending – 42 percent said they planned to spend less this year – but Alison Paul, U.S. retail & distribution leader at Deloitte LLP says consumers often survey one way and act another. “It’s a downbeat story, but I have faith that they will spend more than they say they will,” she says.
Either way, if the Super Committee has the potential to propel spending or curtail it we were wondering what how this might affect retail stocks.
Quite a few observers are bearish on consumer spending towards the end of the year, but we’ve found a few exceptions.
To create this list, we started with a universe of about 180 consumer companies.
To refine the list, we collected data on institutional transactions, and identified the names that have seen significant inflows during the current quarter.
And to further refine the list, we collected data on short seller trends, and identified the names that have seen a significant decrease in shares shorted during the current month (i.e. short sellers think the upside of these stocks outweigh the downside)
Sophisticated investors, like hedge funds and short sellers, think these consumer names are going higher, regardless of the political instability. Do you agree?
Use this list as a starting point for your own analysis.
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1. Express Inc. (EXPR): Operates specialty retail stores in the United States. Net institutional purchases in the current quarter at 5.4M shares, which represents about 15.69% of the company's float of 34.41M shares. Shares shorted have decreased from 4.57M to 4.14M over the last month, a decrease which represents about 1.25% of the company's float of 34.41M shares.
2. AnnTaylor Stores Corp. (ANN): Operates as a specialty retailer of women's apparel, shoes, and accessories primarily in the United States. Net institutional purchases in the current quarter at 24.4M shares, which represents about 52.72% of the company's float of 46.28M shares. Shares shorted have decreased from 8.38M to 7.20M over the last month, a decrease which represents about 2.55% of the company's float of 46.28M shares.
3. Collective Brands, Inc. (PSS): Engages in the wholesale and retail of footwear and related accessories worldwide. Net institutional purchases in the current quarter at 2.8M shares, which represents about 5.07% of the company's float of 55.24M shares. Shares shorted have decreased from 17.99M to 16.19M over the last month, a decrease which represents about 3.26% of the company's float of 55.24M shares.
4. rue21, Inc. (RUE): Operates as a specialty apparel retailer in the United States. Net institutional purchases in the current quarter at 1.8M shares, which represents about 13.53% of the company's float of 13.30M shares. Shares shorted have decreased from 5.76M to 5.52M over the last month, a decrease which represents about 1.8% of the company's float of 13.30M shares.
5. Pantry Inc. (PTRY): Operates convenience store chain in the southeastern United States. Net institutional purchases in the current quarter at 1.8M shares, which represents about 8.09% of the company's float of 22.24M shares. Shares shorted have decreased from 2.01M to 1.73M over the last month, a decrease which represents about 1.26% of the company's float of 22.24M shares.