Coming Full Circle
RECENT THOUGHTS
As we’ve already discussed in recent blogs (in particular, visit Fed says: Recession Near End), retail sales appear to be up, but when you strip out the boost of auto sales from the cash for clunkers program, spending is actually weaker. The more frugal consumer as of recent hasn’t disappeared after all. During this rally, investors seem to believe that consumers who were trading down are now going to be trading up. However, unemployment is still rising and consumers are still heavily in debt. We believe the bargain hunting is far from over.
If you recall, we wrote a blog last year on WMT and how we were selling out of our WMT position. The stock price took off while prices elsewhere were dropping because everyone was piling into WMT for safety. Instead, we gradually established a position in TGT as its shares tumbled. Target Corp.’s stock (TGT) has performed extremely well these past few months and today, they handily beat expectations. So, we began selling out of our TGT position today. On the other hand, one week ago we began re-establishing a position in Wal-Mart Stores Inc. (WMT) (fortunately the day before the stock popped on positive earnings announcements!) at prices less than where we sold a year ago. We’ve come full circle.
So, while consumers remain reluctant to trade up in terms of retail goods – we sure are – well, that is, trading up in terms of higher quality stocks (see our blog from two days ago).