They say baseball is the great American pastime, but I think it might be shopping.
Spring training is underway as teams prepare for the upcoming baseball season, but shopping is a year-round sport.
Some of us are Hall of Fame shoppers and like the process more than others. But all of us, deep down, like to buy stuff.
We consumers have an important job. Our spending accounts for roughly two-thirds of the $23.3 trillion U.S. economy, which is by far the largest in the world.
We cut back some in November and December, but consumer spending in January increased a solid 1.8%.
Consumer behavior has been both fascinating and critical in the past year. Even with the pain of higher prices, spending has held up well, which is a big reason the economy has also held up well in the face rising interest rates.
In what’s been a tough year, consumer-related stocks even outperformed the broader market rather easily the last 12 months, as shown by the Consumer Discretionary SPDR ETF (XLY) and the Consumer Staples SPDR ETF (XLP).
If we’re going to spend all that money on stuff, wouldn’t it be nice to make some of it back by “owning” the stores you shop in?
Yes, but that can only happen if stocks are positioned to move higher.
The best way to figure that is to run them through our system, check on their latest Quantum Scores, and see what the data tells us about upside potential. We’ll go from highest-ranked to lowest.
Dick’s Sporting Goods (DKS)
Quantum Score: 77.6
Technical Score: 79.4
Fundamental Score: 75.0
Big Money signals (last six months): 4 buys/2 sells
Six-month performance: 22%
Dick’s Sporting Goods is the nation’s largest sporting store. It is also the strongest of the five stocks with its excellent Quantum Score of 77.6, and it is the second-best performer over the last six months with a 22% run.
The business is solid, with good earnings growth, sales growth, and profit margins. However, earnings are expected to decline in the current quarter and current year. Debt at 215% of equity is high for my liking, and some valuations are a little rich.
DKS shares have consolidated in the $130s for the last month, which dovetails with the last Big Money buy signal we saw on Jan. 31.
Dick’s is a good company, and while it ranks high and may well tick up in the future, I would focus on other opportunities right now. I could become much more interested if and when estimates turn back up and we again spot unusual buying.
Quantum Score: 60.3
Technical Score: 55.9
Fundamental Score: 66.7
Big Money signals (last six months): 2 buys/1 sell
Six-month performance: 0.8%
Target stores are everywhere. With nearly 2,000 locations in the U.S., the company points out that 75% of the population lives within 10 miles of a store.
That’s impressive, but the stock is rather ho-hum right now. Its Quantum Score of 60.3 is decent but not outstanding, which is also true of its Technical Score and Fundamental Score. The stock has traded between $140 and $180 the last six months but is ultimately flat in that time.
Equally concerning, we’ve seen only two Big Money buy signals in the last six months.
I may not run right out and sell TGT shares, but I am not a buyer either.
Quantum Score: 58.6
Technical Score: 67.7
Fundamental Score: 45.8
Big Money signals (last six months): 6 buys/1 sell
Six-month performance: 32%
Macy’s may be best-known for its New York location and Thanksgiving Day parade, but it has 508 stores around the U.S. and sells everything from clothing and accessories to cosmetics and furniture.
Shares popped 11% last Thursday after the company reported much better-than-expected earnings. The stock is the top performer of this group with its 32.5% surge in the last six months, but the fundamentals remain average to poor. The Quantum Score of 58.6 is neither great nor poor.
Big Money activity is decent, though it is clustered last fall and in February. Interestingly, we did not see a signal last week after the positive earnings report.
The fundamentals are just too weak to own this stock right now. It may attract Big Money interest from time to time as one of the retail giants, but that’s not enough to make up for weaker sales and earnings.
Best Buy (BBY)
Quantum Score: 56.9
Technical Score: 55.9
Fundamental Score: 58.4
Big Money signals (last six months): 8 buys/2 sells
Six-month performance: 17%
Best Buy isn’t quite as ubiquitous as Target, but it has more than 1,000 stores in the U.S. and hauled in $46 billion in sales in its last fiscal year. The stock is up 17% over the last six months, but even with that, it is down 22% over the past year.
Of the stocks we’re looking at today, Best Buy has seen the most Big Money activity over the last six months – eight buy signals, compared with just two sell signals back in September.
I like the high number of unusual buying signals, including one as recent as early February. However, the sluggish fundamentals – year-over-year earnings have declined five consecutive quarters – and equally unexciting technicals keep me on the sideline for the time being. So does the 56.9 Quantum Score.
Quantum Score: 50.0
Technical Score: 41.2
Fundamental Score: 62.5
Big Money signals (last six months): 2 buys/2 sells
Six-month performance: 8.6%
Nordstrom is the high-end retailer of our little group here. And not surprisingly given inflation and the economy, it is also the lowest rated with a Quantum Score of just 50.0. I never say never, but I can’t imagine a scenario in which I would invest in a stock with a score that low.
Ironically, the fundamentals are the strongest component for Nordstrom. They are not spectacular, but they also aren’t disastrous. Instead, the Technical Score of 41.2 is the biggest drag on JWN shares, which hit their 52-week high 323 days ago.
Big Money interest is rather tepid, with one buy signal last fall and one in early February after a strong January rally that has all but fizzled.
JWN is a hard pass for me until we see improving fundamentals, which in turn should boost the technicals and Big Money interest.
So, I’m sorry to say that the moneymaking prospects in most retail stocks are mixed at best right now, which make sense as the Federal Reserve continues to fight inflation. Ironically, discretionary stocks have been among the strongest to start the year, and that’s where we find better opportunities right now. Like Crocs (CROX), which we talked about last week and which remains highly ranked with a Quantum Score of 84.5.
Be even more selective with your stocks than you are with your shopping. A bigger discount doesn’t always mean a better deal, and sometimes it’s worth paying more for better quality. I suspect more retail stocks will strengthen as we move through the year and inflation wanes.
In the meantime, pat yourself on the back when you buy stuff. You’re doing your part to support the American economy!