Retailers are dropping like the proverbial flies. The stock market is on a slippery down-slope right now. This is one of the more dangerous times to invest in retail-related stocks.
This does not mean that no one should invest in retail-related stocks. It means that one should use much more caution than is normally required for any investment. In fact, more caution should be used in investing in any stocks now. When the market is going down it tends to pull good stocks down with the bad.
The good news is that the savvy investor can find some retail-related stocks at bargain prices in this environment if you know what to look for.
The Retail Environment
Right now we are dealing with unemployment, house foreclosures, and continued indebtedness. The American middle class is in big trouble. As a result, Americans are saving more and spending less. They are trying to get out from under their indebtedness.
This means less money to spend on stuff, the stuff that retailers sell. It is not a good environment for most retail outlets. A wrong bet could be disastrous for your portfolio. When dealing with the environment we are in right now, the old rules may not apply and we need to look at the retail situation with different eyes.
What’s Old
Electronics are an old standby. People buy televisions and audio-visual stuff. People buy electronic gadgets of every type, including game players, music players, and hand-held devices of every kind. People line up for the latest Apple phone, MP3 player, or portable computer (or electronic reader).
As investors we need to look at least a couple of years down the line unless we plan to flip our investments quickly. Can electronics continue in their bull market? Do Americans have the money to continue to upgrade their computers and other electronic stuff? Can they afford larger and larger TVs or newer 3D TVs? They may want all of that stuff but some may have to choose between what they want and what they need to survive. Priorities can change quickly in this environment.
All large retail outlets, big department stores and other big chains, are vulnerable to the downturn. It is dangerous to believe the government’s assurances that the worst is over. If you only get your information from the mainstream media, you are in trouble. Things are not getting better and they could get a lot worse.
If you are thinking of large chains, whether retail outlets or restaurant chains, take a real close look at where they are today and project their probability of success based on the changing buying habits of the average American.
Even necessities like food and clothing are going to take a hit. Americans will need to get down to basics and not spend as much on clothing just because they think something is cute or they would look good in it. Restaurants are going to suffer but even the food we buy to take home will be downgraded to fit our shrinking wallets.
Also, in spite of government assurances that we are not suffering inflation, prices at the grocery stores tell a different story. Did you know that food and energy are not counted in the inflation number? These are two of our biggest expenses. As inflation goes up, the buying power of your dwindling dollars will buy less.
What Might Work
In spite of the food problem, we still need to eat. But it might be safer to invest in the source of the food and not the retailers. Agribusiness should be good for the long term, the companies themselves and those companies that support farming. Look at fertilizer and seed producers. Look at retailers of farm equipment like tractors and balers, etc. Look into farmland as way to invest in food production.
One of the best investments right now, in terms of retail, would be those retailers who cater to the very wealthy. While the middle class is disappearing and those who are still working are pinching their pennies, the very wealthy are doing better than ever. The gap between the richest and the poorest is greater than during the Great Depression.
So the very wealthy are spending as fast as they can. Look to retailers who sell luxury goods. Just because they sell luxury items does not mean that their stocks are too expensive. I would look into yacht retailers, high end car retailers, luxury items for the home and garden, and high end jewelry retailers.
If you can find coin dealers who are listed on the market, they might be a good investment. Precious metals continue in a bull market and probably have at least a few more years to run. As the dollar plummets, gold and silver shine. Sales of gold and silver bullion are on the rise as is the sale of gold, silver, and platinum jewelry.
Do your homework and look to those retailers who will not only survive the ongoing downturn but may be able to thrive because of it.