Visually Compelling TA

Current conventional wisdom asserts the consumer is the economy's weak link and proposes avoidance of consumer discretionary stocks. This contrarian, believing that the consumer is not dead, holds one third of his SLO portfolio in consumer discretionary stocks. Current valuations in retail, restaurant, and resort industries make this an excellent time to buy good companies at good prices.

Kohls Corporation (KSS) is mid-way through an aggressive department store expansion. Compared to its peers JC Penny and Macy's, it has both higher operating margins and lower debt. Kohl's stores are well located and they are adept at promoting customer loyalty by dispensing "most valued customer" status via their credit card program.

Stein Mart (SMRT) is a much smaller retailer that Kohl's and its slowing sales and the recent suspension of its dividend has resulted in an extreme oversold position. Insiders appear to see better days ahead having bought nearly a million shares in the last couple of months.

The shoe retailer Collective Brands (PSS) is in the midst of a turnaround story offering considerably improved merchandise. Its Payless stores will soon have shelves stocked with exclusive designs from noted designers such as Laura Poretzky, Lela Rose Patricia Field, and Stacey Bendet. PSS' most recent earnings report confirms this strategy is beginning to pay-off.

As for restaurateurs, many appear to be quite oversold. For example the casual diner Ruby Tuesdays (RT) can be obtained for an incredible low value of 30% of sales. Insiders have doubled their holdings in the past six months.

As for resorts, it is inevitable that a measurable portion of the $160B of economic stimulus checks will find its way into casinos. Isle of Capri (ISLE) has many heartland properties within driving distance of people soon to have "found money" in their pockets. Las Vegas Sands (LVS) has the appeal of its Macao properties and visions of further growth in Asia.

In keeping with my three-unit buying tactic described in an earlier post, my SLO portfolio contains three units of PSS, two units each of KSS and SMRT, and one unit each of RT, ISLE, and LVS.

Comments: View Comments |  Sunday March 2, 2008