Industry Rank Analysis 11-15-11
Before you know it, Christmas will be here. That is something that
tends to bring retail front and center to the minds of
investors.
Rumors of the death of the U.S. consumer appear to be premature.
Despite extremely low levels in the surveys of consumer confidence,
people are still going out to shop. Personally I don’t like to rely
on those surveys, because what people say to the poll takers is
often very different from what they actually do.
A wide variety of Retail industries are doing very well based on
the Zacks Rank. In light of the second month in a row of
surprisingly strong Retail Sales numbers, it looks like the
retailers might continue to stay on top for a while.
Also in the third quarter, inventory growth was a drag on the
economy, so the retailers are probably going into the all-important
Holiday season with lean inventories and will not have to go on a
price (and margin) slashing spree. For Retail Investors, this could
be the season of Santa, not the Grinch this year.
Zacks Industry Classifications
The Zacks industry classifications are very fine, with 258
different industries tracked. It is not particularly noteworthy if
a single small industry shows up doing well, a single firm with
good news can propel a one or two firm industry to the top (or
bottom) of the charts. It is interesting when you see a cluster of
similar industries at the top of the list. The same holds true for
the bottom of the list.
The definition of size that matters here is not the total sales or
market capitalization but the number of companies in the
“industry.” Honestly I think we cut the definitions of an
“industry” too fine, but when 10 of the 15 groupings that make up
what one thinks of as “Retail” overall are in the top 50, the story
is pretty clear regardless of how small we make the groupings.
Retail Takes 6 of Top 20
There are six different Retail “industries” clustered in the top
“20,” although due to ties, the rankings jump from 18 to 32. Some
of them are on the small side, with two of them having just four
members. Others, including Drug Stores and Auto dealers are larger
than average with 11 members. None of the ten “industries” saw an
increase in its average Zacks Rank, although some slipped a few
places in the ranking from last week.
If the Zacks Ranks were distributed randomly, one would expect that
only 5% of the members of these “industries” would earn the coveted
Zacks #1 Rank (Strong Buy). Instead, 16 of the total of 96 (16.7%)
have earned that distinction. If it were random, only 15% would
hold Zacks #2 Ranks (Buy) but actually 36, or 37.5%, hold it.
In terms of target shoppers, the firms range from those that cater
to the very wealthy, such as the high-end department store chain
Saks (SKS) to those that cater to a decidedly less
affluent clientele such as
Family Dollar (FDO).
That would also probably hit sales at some of the mid-range stores
such as
Bed Bath & Beyond (BBBY) or
Macy’s (M) that currently hold number Zacks #1
Ranks.
There are a wide variety of Market Capitalizations to choose from
on the two lists, ranging from mega-caps
CVS-Caremark (CVS) and
Target
(TGT) down to sub-$100 million micro-caps. The valuations are for
the most part what I would call reasonable: not compelling, but not
at scary nose-bleed levels either. There are a few that I would be
cautious about on a valuation basis, particularly on this year's
earnings.
Also, while things are going well now, or at least much better than
people had been anticipating (and the Zacks Rank is driven by the
change in expectations and earnings surprises), I do remain worried
about consumer spending in 2012. Unless Congress does something,
the payroll tax cut that has been in effect for this year will
expire on January first. For someone earning $50,000, that means
$1,000 less in take home pay, and that will probably result in a
lot less discretionary spending.
That will be a very big issue for the Retailers that either mostly
cater to the middle to lower class customer, or which sell very
discretionary items. Since the tax increase will max out at $2,134
(2% of the $106,700 limit on payroll tax collections), that will be
much less of an issue for a firm like Saks. It could be a very
serious issue for some of the stores with a poorer clientele, such
as
Dollar Tree (DLTR) and
Big
Lots (BIG).
One should, however, not make the mistake of thinking that a weak
economy is bad for all retailers. For example, if people are not
confident enough to buy a new car, it means they will be keeping
their old jalopy on the road longer. That can only be good news for
the auto parts stores like
O’Reilly (ORLY) and
Advance Auto (AAP).
The Zacks Rank is, however, better used as a short term
timing/trading tool, not as a guide towards long-term investing.
Its maximum impact comes in less than three months. Thus even if
you agree that there will be substantial headwinds for the consumer
next year, there may still be a good trade or two to be made.
Number 1 Ranked Firms
Company |
Ticker |
Market Cap ($ mil) |
P/E Using Curr FY Est |
P/E Using Next FY Est |
"%Ch Curr Fiscal Yr Est - 4 wks" |
"%Ch Next Fiscal Yr Est - 4 wks" |
"Current Price" |
Div Yield |
Bed Bath&Beyond |
BBBY |
$13,186 |
14.38 |
12.56 |
0.18% |
0.23% |
$52.90 |
0.00% |
Macys Inc |
M |
$11,326 |
10.43 |
9.14 |
1.97% |
2.62% |
$26.54 |
1.51% |
Ross Stores |
ROST |
$8,603 |
13.69 |
12.34 |
1.20% |
1.22% |
$73.56 |
1.20% |
O Reilly Auto |
ORLY |
$8,045 |
16.19 |
14.27 |
0.61% |
0.76% |
$58.35 |
0.00% |
Tractor Supply |
TSCO |
$4,255 |
20.83 |
18.12 |
2.41% |
1.94% |
$58.89 |
0.82% |
Advance Auto Pt |
AAP |
$4,057 |
11.42 |
10.1 |
-0.37% |
-0.05% |
$52.94 |
0.45% |
Ulta Salon Cosm |
ULTA |
$3,451 |
34.59 |
27.63 |
0.18% |
0.62% |
$56.39 |
0.00% |
Signet Grp Plc |
SIG |
$3,061 |
10.56 |
9.35 |
0.00% |
0.00% |
$35.42 |
0.00% |
Gnc Holdings |
GNC |
$2,194 |
18.43 |
15.78 |
9.08% |
9.20% |
$24.36 |
0.00% |
Sonic Automotve |
SAH |
$762 |
11.02 |
9.3 |
1.90% |
1.50% |
$14.39 |
0.69% |
Lithia Motors |
LAD |
$485 |
10.68 |
9.29 |
21.69% |
23.33% |
$18.42 |
1.52% |
Pharmerica Corp |
PMC |
$362 |
14.48 |
13.11 |
2.22% |
0.00% |
$12.34 |
0.00% |
Susser Hldgs Cp |
SUSS |
$282 |
15.63 |
14.55 |
3.28% |
3.18% |
$16.19 |
0.00% |
Conns Inc |
CONN |
$270 |
16.93 |
11.45 |
13.56% |
30.41% |
$8.51 |
0.00% |
Build-A-Bear Wk |
BBW |
$109 |
N/A |
25.66 |
-55.56% |
0.00% |
$5.56 |
0.00% |
Travelcenters |
TA |
$83 |
14.9 |
5.78 |
0.00% |
0.00% |
$4.62 |
0.00% |
Number 2 Ranked Firms
Company |
Ticker |
Market Cap ($ mil) |
P/E Using Curr FY Est |
P/E Using Next FY Est |
"%Ch Curr Fiscal Yr Est - 4 wks" |
"%Ch Next Fiscal Yr Est - 4 wks" |
"Current Price" |
Div Yield |
Cvs Caremark Cp |
CVS |
$46,305 |
12.31 |
10.77 |
-0.22% |
0.25% |
$34.15 |
1.46% |
Target Corp |
TGT |
$33,527 |
11.75 |
11.07 |
0.10% |
-0.02% |
$48.65 |
2.06% |
Mckesson Corp |
MCK |
$18,532 |
12.11 |
10.74 |
1.59% |
0.91% |
$75.31 |
1.06% |
Cardinal Health |
CAH |
$14,069 |
13.15 |
11.69 |
0.95% |
1.36% |
$40.13 |
2.14% |
Autozone Inc |
AZO |
$11,585 |
14.54 |
12.64 |
0.00% |
0.14% |
$278.74 |
0.00% |
Best Buy |
BBY |
$9,542 |
7.26 |
6.86 |
0.09% |
0.64% |
$25.52 |
2.35% |
Dollar Tree Inc |
DLTR |
$7,681 |
16.15 |
14.09 |
0.19% |
1.18% |
$62.82 |
0.00% |
Family Dollar |
FDO |
$5,835 |
15.7 |
13.56 |
-0.28% |
-0.25% |
$48.53 |
1.48% |
Petsmart Inc |
PETM |
$4,624 |
16.76 |
14.51 |
0.22% |
0.34% |
$40.78 |
1.37% |
Dicks Sprtg Gds |
DKS |
$3,903 |
16.71 |
14.35 |
0.04% |
-0.21% |
$32.49 |
0.00% |
Williams-Sonoma |
WSM |
$3,414 |
14.69 |
13.02 |
0.06% |
0.18% |
$32.66 |
2.08% |
Sally Beauty Co |
SBH |
$3,098 |
16.71 |
14.36 |
0.00% |
0.28% |
$16.90 |
0.00% |
Big Lots Inc |
BIG |
$2,385 |
10.94 |
9.59 |
-0.20% |
0.52% |
$31.73 |
0.00% |
Penske Auto Grp |
PAG |
$1,777 |
12.03 |
10.61 |
4.42% |
1.70% |
$19.18 |
0.36% |
Cabelas Inc |
CAB |
$1,633 |
11.84 |
10.36 |
2.92% |
3.48% |
$23.63 |
0.00% |
Saks Inc |
SKS |
$1,537 |
28.01 |
19.38 |
1.68% |
2.92% |
$9.40 |
0.00% |
99 Cents Only |
NDN |
$1,268 |
15.51 |
13.9 |
0.63% |
0.78% |
$18.00 |
0.00% |
Pier 1 Imports |
PIR |
$1,153 |
12.4 |
10.56 |
0.31% |
0.27% |
$9.89 |
0.00% |
Rite Aid Corp |
RAD |
$1,068 |
N/A |
N/A |
5.49% |
0.73% |
$1.20 |
0.00% |
Group 1 Auto |
GPI |
$1,019 |
11.98 |
10.43 |
13.52% |
7.05% |
$42.44 |
1.04% |
Hibbet Sports |
HIBB |
$979 |
18.37 |
16.18 |
0.00% |
0.00% |
$35.83 |
0.00% |
Rush Enterprise |
RUSHB |
$549 |
10.9 |
7.36 |
N/A |
N/A |
$14.49 |
0.00% |
Ethan Allen Int |
ETH |
$527 |
20.83 |
13.56 |
0.00% |
-4.71% |
$18.30 |
1.53% |
Hhgregg Inc |
HGG |
$443 |
8.65 |
7.37 |
-1.26% |
-1.02% |
$11.14 |
0.00% |
Freds Inc |
FRED |
$436 |
12.93 |
11.02 |
-1.01% |
-0.71% |
$11.07 |
1.81% |
Bioscrip Inc |
BIOS |
$326 |
22.26 |
12.52 |
0.00% |
0.00% |
$6.01 |
0.00% |
China Nepstar |
NPD |
$268 |
32.5 |
32.5 |
3.23% |
3.23% |
$2.60 |
0.00% |
Kirklands Inc |
KIRK |
$195 |
9.74 |
7.86 |
0.00% |
0.00% |
$9.78 |
0.00% |
Big 5 Sporting |
BGFV |
$166 |
10.94 |
8.63 |
-4.03% |
-4.58% |
$7.56 |
3.97% |
Us Home Sys Inc |
USHS |
$36 |
9.52 |
7.17 |
0.00% |
0.00% |
$4.95 |
1.21% |
In evaluating the Zacks Industry Ranks, you want to see two
things: a good overall score (low, meaning more Zacks #1 and #2
Ranked stocks than #4 or #5 Ranked stocks) and some improvement the
relative position from the prior week. It is also helpful to
understand exactly what the Zacks Industry Rank is.
The Zacks Industry Rank is the un-weighted average of the
individual Zacks ranks of the firms in that industry. It does not
matter if the stock is the 800 lb gorilla that dominates the
industry or some very small niche player in the industry -- they
have the same influence on the industry rank.
Also, that means that the bigger the industry in terms of number of
firms, the less influence any given company has on the industry
rank. It also implies that small industries, with just two or three
firms, should be the ones found at either the top or the bottom of
the list. After all, if there are only two firms in the industry,
it is relatively easy to get a Zacks rank of 2.00 (i.e. one with a
Zacks Rank of #1 and the other with a #3). Right now, that industry
rank would be tied for 6th place among the 255 industries
tracked.
The same obviously goes for the bottom of the list as well. If
there are 50 firms in the industry, and it ends up at one of the
extremes, that means there has to be something pretty significant
going on. Thus, I do not always focus on the very highest rated
industries, but on the highest rated ones in which there are a
large number of firms.
Click here for the Zacks Industry Rank List:
http://www.zacks.com/zrank/zrank_inds.php
ADVANCE AUTO PT (AAP): Free Stock Analysis Report
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
BIG LOTS INC (BIG): Free Stock Analysis Report
CVS CAREMARK CP (CVS): Free Stock Analysis Report
DOLLAR TREE INC (DLTR): Free Stock Analysis Report
FAMILY DOLLAR (FDO): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
O REILLY AUTO (ORLY): Free Stock Analysis Report
SAKS INC (SKS): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
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