Retail Sector Fears Have Been Overblown, For Now

The past few months have seen retail stocks underperform on concern that consumers have been slowing their spending. The latest retail sales data indicates that consumers are fine overall. If anything, they’re just cutting back on spending unless they can get a big bargain.

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  • Investors looking at the retail space should focus either on companies that can offer big, regular sales, or on big box stores that cater to consistent demand.

    Home improvement chain Home Depot (HD) is in the latter category.

    Consumers need to maintain their homes, even if they can’t always get a big sale to buy things they want. The company handily beat on earnings recently, and upped their share buyback to $15 billion.

    Action to take: Shares are flat over the past year, and now trade at 20 times earnings, slightly below the market average.

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  • Home Depot can continue using its excess cash to buy back shares and pay a dividend of 2.5 percent at current prices. That makes for a long-term buy at current prices or on any drop lower.

    For traders, shares have been trending higher and are likely to continue to do so. The November $350 calls, last going for about $7.50, could see mid-double-digit gains in the months ahead.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.


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