Merrill Lynch downgraded Wal-Mart (WMT) Barnes & Noble (BKS) and Target (TGT) to buy from strong buy, and downgraded Federated Department Stores (FD) to neutral from strong buy. Merrill also cut Dillard's (DDS) to sell from neutral, and slashed the retail industry weighting to average weight from overweight.
Merrill retail analysts say: "We're close to a point in time when a recovery in total corporate profits should exceed a recovery in retailing profits, causing a rotation of investment funds from retailing to manufacturing stocks. He notes, seasonally, that retailing stocks have historically been only average performers in the back nine months of the year, even in the years following recessions. For the near term, the analysts downgraded these retail stocks.