By Michael Kaye, CFA With the holiday season coming up soon, retailers surely will be gaining some attention from investors. But will the group get glad tidings?
Early signs appear encouraging. Standard & Poor's retail analyst Marie Driscoll looks for a 3% gain in 2004 holiday retail sales, modestly below 2003's rate but ahead of the 2.6% compound annual growth rate of 2000-03. She notes that the 2004 holiday season has 29 shopping days between Thanksgiving and Christmas, two more than 2003, and the most since 2001. Also, Hanukkah starts on Dec. 7, vs. Dec. 19 last year.
And finally, Driscoll points out that U.S. consumers have proved resilient in spite of four hurricanes in late August and September, oil prices topping $50 a barrel, declining confidence scores, interest rate hikes, and a less-than-robust jobs picture. This is important since back-to-school spending has historically been a good indicator of spending for Christmas and Hanukkah.
HIGH MARKS. As children everywhere begin the first drafts of this season's letters to Santa, we decided to draw up a shopping list of our own -- retailing stocks that score high in three key S&P investing categories. First, we looked for those industry members with S&P's top investment recommendations: 4 STARS (accumulate) or 5 STARS (buy). Stocks with those designations are expected to outperform the overall market over the next 6 to 12 months.
Next, we sifted for issues with the highest
S&P Fair Value rankings of 4 (moderately undervalued) or 5 (significantly undervalued) under S&P's proprietary quantitative model.
Then, we sorted for those with S&P
Quality rankings -- a measure of earnings and dividend growth over a 10-year period -- of B or better.
We found these five issues under the tree:
A HOLIDAY SHOPPING LIST FOR INVESTORS
S&P STARS Rank
S&P Fair Value Rank
S&P Quality Rank
Abercrombie & Fitch
With S&P MarketScope reporter Chris Burba
Kaye is an analyst for Standard & Poor's Portfolio Advisors