Why Market Rewards Retail
A spate of strong retail reports
helped retailers forge ahead Thursday while the Dow managed a slight gain and
the big-cap techs failed to hold onto a gap-up open and ended in the red.
The Dow Jones Industrials closed up
0.4% while the S&P 500 lost 0.4% and the Nasdaq Composite 1.3%. The New York
Stock Exchange Composite gained 1.5%.
In the sectors, the S&P Retail
Index
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2.0%,the S&P Chemical Index
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Cyclical Index
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Mark Minervini, 1997 U.S. Investing
Champion and portfolio manager of the New York-based Firstmark Fund, sees in the
strong retail performance anticipation of economic recovery.
“Retail is discounting an
economic turnaround. However, this does not apply to all retail stocks,”
Minervini said. “The area that is really leading here is specialty retail
— companies like Columbia Sportswear
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Charlotte Russe
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some of the stocks that area doing the best and have emerged out of consolidations.”
The market action also signals a
strategy shift by the institutions, according to Minervini.Â
“The market has returned to an
earnings growth model. The market is back to rewarding earnings as opposed to
the way analysts were starting to value Internet stocks and dotcom stocks with
curve-fitting criteria to justify owning them,” Minervini said.
“Columbia Sportswear is an example. The company just doubled the First Call
estimates. Over the prior several years, their earnings were flat
year-over-year. So they’ve had an earnings breakout to the upside. On top of
that, the company also has nice expanding profit margins over the past four
years along with good top line growth. They’re hitting on all cylinders.”
Among Thursday’s winners, discount retailer Kohl’s
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merchandise sales. The Gap
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better-than-expected April sales and predicted Q1 profits would exceed lowered
Wall Street expectations. Talbots
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same-stores increased 12.6%.
Caterpillar
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cyclicals. The stock moved up 2.8% into new high ground.
Among the losing sectors, the Amex
Biotechnology Index
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1.5%, the Amex Airline Index
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Sunrise Assisted Living
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fell 9.6%, Juniper Networks
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Among the Dow winners, WalMart Stores
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Home Depot
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