| Retail Blues : This morning, Goldman Sachs and Merrill Lynch have ganged up on the retailers, accounting for no fewer than 17 different downgrades between the two firms. Briefing.com will refrain from detailing the actual ratings changes here, but it will behoove investors to know that the stocks on the hit list include the following: TOM, RL, PVH, OO, NAUT, JNY, GCO, DG, TOY, LIZ TIF, GPS, WSM, PSUN, GYMB, FTS, ANF and LIN. The basis for the negative coverage from each firm is predicated on concerns regarding the macro-economic environment, but that probably won't catch too many investors by surprise given the understanding that consumer activity was retarded in the wake of the terrorist attacks. Even so, many retail stocks were already well off their late-Spring/early-Summer highs prior to the attacks as mounting layoffs, and residual concerns about job security for employed workers, left the market agitated by the prospect of a slowdown in consumer spending in coming months. Now, with the negative impact of the terrorist attacks, that prospect seems to be a foregone conclusion as recession fears were heavily discounted in stock prices last week. Not surprisingly, with the improved tone in the broader market today, the retail stocks are among the participants benefitting from bargain hunting interest. In most cases, Briefing.com would agree with that response as some intriguing long-term investment opportunities have been created by the recent selloff. Investors, however, should still be prepared for increased volatility in the sector as forthcoming sales and earning results should reflect the consumer's growing uncertainty about the near-term economic environment. That should be particularly true among the specialty retailers, which will bear the brunt of a pullback in discretionary spending over the near-term. Fortunately, with current monetary and fiscal policies, the foundation has been laid for long-term outperformance. Yes, there will be near-term earnings disappointments, and the potential for further downside in stock prices, but if you have an investment time frame of 12 months or more, these are opportune times as Briefing.com believes the risk-reward situation for the retailers favors the reward side for the patient-minded.-- Patrick J. O'Hare, Briefing.com |
