Finding New Buys in Retail ...
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Posted on 01/24/2012, 14:28
By Nilus Mattive
The holiday shopping season is now behind us, but that doesn't mean investors should ignore retailers now.
In fact, I just made a new recommendation in this space for my dad's retirement portfolio ... on top of a few other choice store stocks that are ALREADY in both his income portfolio as well as my long-standing Dividend Superstars list.
More on why I like those specific companies in a minute though.
The holiday shopping season is now behind us, but that doesn't mean investors should ignore retailers now.
In fact, I just made a new recommendation in this space for my dad's retirement portfolio ... on top of a few other choice store stocks that are ALREADY in both his income portfolio as well as my long-standing Dividend Superstars list.
More on why I like those specific companies in a minute though.
First, let's take a broader look at this particular area of the market ...
A good general definition of a "retailer" might be any company that sells goods through physical and/or online storefronts.
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But it's important for us to make more detailed distinctions ... especially if we want to understand where the real dangers and opportunities are.
For example, there are traditional department stores — the ones you used to find around your local town square, and which now typically anchor malls.
And even among this subset of retailers, you can make plenty of distinctions such as:
- Luxury stores, including Nordstrom and Saks, which cater predominantly to wealthier shoppers and so-called "aspirational" buyers — the regular folks overusing their credit cards to snap up Louis Vuitton bags and designer clothes.
- Moderate department stores like J.C. Penney and the in-deep-financial-trouble Sears chain.
- Discount stores — everyone from Target to 99 Cents Only and Dollar General stores.
Then there's Wal-Mart ...
Sure, it's also a discount store, but it's so big that many analysts consider the company to be more like a consumer staple.
Reason: It sells such a high volume of daily necessities like groceries and health products!
Yet we've still only scratched the surface of the retail group.
Beyond the various levels of department stores we have an array of specialty retailers who sell sporting goods, home and bath products, consumer electronics, apparel, auto parts, and everything in between.
And there are plenty of other companies that — if not classic retailers — should still be treated as such from an investment perspective. Drug stores, which are often lumped in with the healthcare sector, are a good example.
Meanwhile, let's not forget about all those retailers now operating purely in cyberspace, either!
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Okay, so there are a lot of choices out there ...
but what should you look for right now?
As always, I start MY searches with dividends.
And while this group may not be the first one you think of for income investments, many retailers ARE paying nice dividends right now.
Just take a look at the following table and you'll see what I mean. Every one of these retailers is paying at least 2 percent a year in dividends ...
Now, as I mentioned, a couple of these companies are already recommendations in Income Superstars.
And while it wouldn't be fair to my paying subscribers to tell you which ones they are, I can at least tell you what I think makes certain retailers more attractive than others in right now.
The first thing is that I want to make sure these companies are not just paying dividends, but that their dividends are relatively safe — and typically growing year in and year out.
Beyond that, I then consider a specific business' prospects in this economic environment.
For example, I'm mostly avoiding companies that sell truly discretionary items or operate in very niche categories.
That's because I just don't think consumers are in the kind of mood to spend freely at these kinds of stores right now.
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Instead, I like retail chains that have solid pricing power ... and if they provide good values to customers either as a regular practice, or through separate discount chains, even better!
Don't get me wrong: I do think there can be room for some of the luxury names to make money going forward. After all, they cater to a demographic that remains largely insulated from economic weakness.
But I don't believe this is the time to go chasing the next big specialty mass retail story — the mall stores that specialize in stuffed animals, custom earrings or other crazy fads. Those plays require strong economic conditions ... and even then, they often fizzle out as fast as they came on the scene.
So stick to the basics, do your homework, and you should be able to find a couple solid retail plays that can both help diversify your income portfolio and pay you solid returns for years to come.
Best wishes,
Nilus
P.S. A full-year of my market-beating Income Superstars newsletter is just $39 ... so why not just try it out for yourself? You'll get all my recommendations, including advanced notice of all the stocks I'm telling my own dad to buy for his retirement account. Just click here to take a risk-free trial today.
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