On last Thursday’s Mad Money episode, Jim Cramer sang the praises of the retail sector, telling viewers “the prevailing wisdom on Wall Street is just too negative”. While I agree that there is some truth to that, I don’t think the bulls are loose either. And an even bigger issue is the way many of the “iconic” brands that Cramer likes do business. Some of these change-resistant corporations have been slow to update their business models. But I think that the post-recession consumer market will dictate some changes to how retailers stay profitable and unless these companies adjust, they could be in big trouble.
Cramer and I see eye to eye on the housing sector. Thanks to the first time homebuyer’s credit, many consumers bought homes this year. Along with a new house comes a desire to fix it up and the trend toward home improvement has been clearly seen through the performance of a few of Cramer’s picks. Sherwin-Williams (NYSE:SHW) has performed well for the year, even during the recession. And Home Depot (NYSE:HD) and Masco (NYSE:MAS) have done very well, both posting gains of more than 20 percent for the year. As the recession eases, I fully expect these stocks will continue to rise, as does Cramer.
On the other hand, Cramer likes retailers. Even the bloated, old-fashioned ones like Macy’s (NYSE:M). I think Macy’s is a disaster. The company is up 55 percent for the year, but it’s still only trading at around half of its year-high. And that’s with the retail season in full swing. Cramer also likes Target (NYSE:TGT), which is up substantially for the year and has almost recovered its trading high. Target definitely looks better than Macy’s to me, but the problem for both of these stores is that what’s saving them right now are their lesser-known housewares segments, while their main product departments have gone stagnant. Macy’s apparel is staying firmly on the shelf and, as Wal-Mart improves its product lines, Target has been steadily losing its appeal to mass-retailer audiences.
Online retailers, though, like Amazon (NASDAQ:AMZN) and Overstock.com (NASDAQ:OSTK) are doing great. With the rise of Cyber Monday, I think that consumers will increasingly turn to the ease, convenience and comfort of online shopping. If so, I expect that online retail stocks will be on the upswing for some time.
