If you follow "retail," you know that the past few weeks have been treacherous, at least if you judge your investments on short-term returns. Plenty of retail stocks were put down, and stayed down, following the barrage of hurricane-related consumer crises: gas prices, inflation, confidence, and even spending.
Just last week, the glimmer of hope that was Wal-Mart's (NYSE: WMT) in-line same-store sales growth expectation was quickly eclipsed by the shadow of a bigger increase in consumer sentiment than was expected, whatever that means. But it turns out consumers may be feeling one way and acting another.
Returning to Wal-Mart, the firm reported today that its October same-store sales growth came in at the high end of the range it expected, at 4.3% before gasoline was considered, or 4% without.
Also today came news from the U.S. Department of Commerce: Spending rose 0.5% in September, over August, but income rose 1.7%, "more than expected," again.
What can we make of such contrary indicators? What should we make of it? As always, I think the answer is, "not much, if anything." The stock market trades on expectations, but the less specific they get, the less useful they are, even when they're right. The press loves to make a lot of noise about these indicators, and there's no lack, but investors would do better to remember Peter Lynch's amusing observations about macroeconomics.
In the intro to one of his books, he tells a story about a roundtable of very intelligent investors, making predictions once a year. Were they right? Rarely. But that didn't stop Lynch from bagging incredible returns because he started at the company, not the economy.
Where should you begin looking if you think consumers aren't going to just fold up their wallets? Given the run on autos over the past year, and the end of the giveaways to jump-start sales, I'd stay away from the likes of Ford (NYSE: F) and GM (NYSE: GM). To judge by the dismal sales so far this fall, there's going to be plenty of pain when the other shoe drops.
To get back to retailers of smaller-ticket items, I think you could do worse than take another peek at recently discounted growers like Abercrombie & Fitch (NYSE: ANF), which I consider a Halloween treat, Best Buy (NYSE: BBY), or larger, powerhouse values such as Home Depot (NYSE: HD) and Wal-Mart itself.
Whatever you do, keep in mind the line I read on one of our Fool boards this morning: "You make your money on the buy." Buy quality goods when they're discounted more than they ought to be -- such as when consumer pessimism leads to short-sighted drops -- and sit back. In the end, you'll come out ahead.
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Seth Jayson
spends his mall time shopping for stocks. At the time of publication, he had shares of Home Depot but no positions in any other firm mentioned. View his stock holdings and Fool profile
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