The surest sign that you should be thinking "buy" is when you see plenty of groupthink from the suit-and-tie crowd, especially when it's telling you to avoid a sector at all costs. That's been the case for the past few weeks with retail stocks.
First came midsummer sales warnings from Wal-Mart (NYSE:WMT) and a few others. Gas prices, everyone claimed, would hamper sales. No wait! Then it was consumer sentiment regarding the economy. Job security? Or is it the war in Iraq? Or that darn low-carb diet everyone's talking about. And finally, the hurricane season gave everyone -- even the makers of laser surgery products -- a brand new excuse.
Bill Mann, whose rants are always worth reading, talked about these excuses while perusing the results at Dress Barn (NASDAQ:DBRN) and Costco (NASDAQ:COST) lately.
As a result, many retail stocks were unfairly pounded. When the talking heads start talking about the tide, it can lower all the boats. And that's when Foolish investors will see opportunity.
How's that? Just look for the real performers: American Eagle Outfitters (NASDAQ:AEOS) came up with huge 23% comps growth and upped its earnings target. Target's (NYSE:TGT) 5.6% beat analysts' estimates handily. Another idea is to think about snatching up the stocks that have been pounded despite the strength of the underlying business.
Abercrombie and Fitch (NYSE:ANF) has headlined several "do not buy" lists lately, yet the company's strong brand, solid balance sheets, cash flow, and bargain price make it worth watching, especially considering the regular fire sales the Street has given the stock lately. Ditto Chico's FAS (NYSE:CHS) and Aeropostale (NASDAQ:ARO), which have been smacked by the market over the past few weeks, yet continue to build on solid financials.
In the end, just remember that it doesn't matter if "retail" is rebounding. Find the individual retailers that are moving the goods in any climate, or whose stock has been savaged by short-term setbacks. And be glad the market is crazy, because without that schizophrenia, there would never be any stocks on sale.
For related Foolishness:
- Sector, schmector. Is it time to buy tech?
- What are they warehousing at Costco?
- Check out three chic stocks.
Fool contributor Seth Jayson was recently enticed to take long positions in Chico's and Aeropostale, but he owns no stake in any other company mentioned. View his Fool profile here.
