Resurrecting Retail Stocks

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In case you missed it, the retail industry has been undergoing resurrection since March, and with tax rebate checks on the way, we might be ready to film the first episode of "Shoppers Gone Wild." Anyway, we think retail stocks might get a boost in the near-term. Even so, recently positive data may be more weather related than due to the anticipation of receipt of government stimulus. Note, we also recommend using any broad sector rise as opportunity to sell the weakest names in the group when momentum teeters.

International Council of Shopping Centers - Weekly Same-Store Sales Data

Anticipation of tax rebate checks looks to have possibly given life to the retail sector. Over the past couple weeks, we've seen the ICSC-UBS Weekly Same-Store Sales data emerge from the murky depths it had only just plunged into. Indeed, the report had only recently dipped into contraction territory when April 15 came to pass, but since then, growth has resurfaced and in force. Today's same-store sales data showed 2.3% year-over-year growth. Still, the week-to-week change indicated a decrease of 0.3%. So, what's up then?

It's very possible that weather is playing a role as well, especially during the transitional period of spring in North America. Temperatures can vary 10 degrees Fahrenheit or more for any given day, when compared to the prior year, and rainfall could vary significantly as well. So, we'll have to pay more attention the the monthly report from the ICSC to get a pure read on the impact of tax rebates. Monthly data should weed out the noise from unpredictable weather patterns.

The Redbook Survey also posted a 1.4% increase year-to-year, which might offer confirmation that something is afoot, and positive for retail. Despite our view that this most recent rise is weather related, we expect a boost from the delivery of rebates, and refunds for that matter. Ah, you crazy American consumers you, still spending like the dickens are we... The check has not even arrived yet!

Reevaluate Retail Plays

While the weakest of the weak should be noting a lot more bad news in the near future, like for instance store closings, employment reduction and bankruptcies, the general tone should turn positive now. So, we would use any near-term rise in retail as opportunity to short the weakest ideas. Talbot's (NYSE: TLB) is one name we keep mentioning here, and if TLB benefits from broad industry improvement now, we would add to short positions or build them.

Retail Holders (AMEX: RTH), an ETF focused on the retail space, has already been improving since mid-March, but is still off last summer's highs. RTH is now up 3.9% year-to-date after adjusting for dividends and splits. I know what you're thinking, "you're late Greek," but just the same, better late then never. Plus, you would have tracked me down and killed me if I told you to buy retail in March.

Remember this Greekism, just because a stock has risen, does not mean it cannot rise further, and just because a stock has declined, does not protect it from further decline. Of course, everything depends on the fundamentals of valuation, demand/supply and the future viability of the company's business. Other funds and ETFs to consider include (Nasdaq: FSRPX), (Nasdaq: TIRTX), (Nasdaq: TCTRX).

Please see our disclosure at the Wall Street Greek website. Article may also interest readers of (AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, AMEX: SDS, AMEX: DOG, AMEX: QLD).