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When the broader stock market is in decline, as it has been so far this year, we typically see knee-jerk reactions to earnings news that creates buying opportunities in the strongest companies.
One industry that has been drawing my focus over the past months has been the retail industry, as proverbial babies are being thrown out with the bathwater.
You see, for every firm that experiences troubles in retailing, such as Best Buy (BBY — rated C-) and JC Penney (JCP — rated D), there are others that are taking market share from the losers.
I’ve found three firms that stand out from the pack. They’re also among the highest-rated stocks in this subsector of the market and are dominating their respective spaces:
Foot Locker (FL — rated A+) is a category-dominant shoe and sneaker retailer. Over the years, it has morphed into an athletic apparel giant, and runs online, direct-to-consumer operations that help keep its competitive edge. It is a well-financed affair, with a solid balance sheet and the type of business that can weather even a downturn in consumer spending.
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| For every firm that experiences troubles in retailing, there are others that are taking market share away from the losers. |
HSN (HSNI — rated A) is also a category-killer. We all know what the Home Shopping Network is about — and we can see by the many imitators and informercial-type promotions on television that there is a high-margin retailing opportunity to be had by using the Internet to boost sales of less-personalized items. The stock is a market favorite, but even it can provide buying opportunities on dark days like those we’ve seen recently.
Genuine Parts (GPC — rated A) is, like those above, a giant in its space. The stock has pulled back recently, providing a buying opportunity, in my view. It sells replacement auto parts, which will be a good spot to be in when overall car sales slow. It operates NAPA stores and sells to parts resellers all over North America.
It’s anxiety-provoking to buy stocks when the overall market is falling. But this is one of those times when it will pay to allow some of the contrarian thinking inside most all investors to slip out.
We’ll get a new read on the employment situation in the U.S. on Friday. And I think it’ll show some upward revisions to the dismal December number, while alleviating pressure on the retail industry’s stocks, in particular. The siege is almost over, so the best way to play it is to pick up high-rated stocks on the cheap.
Best,
Don Lucek
