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Don't Discount Wal-Mart Just Yet |
July 6, 2009 By Tobin Smith, Editor, ChangeWave Investing |
Tobin Smith
Tobin Smith is the founder and editor of ChangeWave Investing. He also serves as executive editor of ChangeWave MicroCap Investor, and contributes his weekly market outlook and editorial rants to ChangeWave's WaveWire e-letter, which is read by more than 250,000 investors each week.
Watching the machinations in the discount retailer space has become an increasingly popular spectator sport among investors these days.
When the economy and the stock market took a nosedive late last year, many consumers stopped shopping at high-priced department and specialty stores and opted for discount retailers offering a much better bang for their dwindling buck.
Stores such as Wal-Mart (WMT), Target (TGT), Costco (COST), 99 Cents Only Stores (NDN) and Family Dollar (FDO) became the go-to shopping destinations for what's now known as a "frugal nation." In fact, a recent Time magazine cover story called this consumer shift toward spending less "The New Frugality."
Now, based on its sheer ubiquity, Wal-Mart is the first of the frugal nation retailers that comes to mind as benefiting most from the changing consumer zeitgeist. It is also a logical place to shop if you're an investor looking to profit from a frugal nation.
But as is so often the case when it comes to the stock market, the most obvious assessment doesn't necessarily translate into reality.
Yes, Wal-Mart shares saw a huge spike in 2008, but so far this year the retailer's shares have lagged significantly as investors are now shopping for bigger returns than the mega-retailer offers.
But despite Wal-Mart's laggard share price performance so far this year, we do know that shoppers still have a discount-oriented mindset when it comes to parting with their money.
According to the latest June consumer spending survey results from the ChangeWave Alliance Research Network, overall consumer spending continues to improve. And though the pace of this improved spending environment has slowed when compared to the past several months, the outlook going forward is on the upswing.
In terms of the big discount retailers, the Alliance survey picked up positive momentum for both Wal-Mart and Target when it comes to respondents who say they'll be spending more, spending about the same or spending less money at those stores. This combined "net difference" score was in the plus column for Wal-Mart and Target; however, the net difference score was in the minus column for Costco.
What this tells us is that that consumers are still spending money at discount retailers, and that bodes well for the balance sheets of Wal-Mart, Target and even Costco going forward.
And while it's an open question as to whether investors will return to shopping at discount retailers with their portfolio dollars, if the trend towards a more frugal nation persists, I wouldn't discount the possibility.
Now is the time to concentrate on stocks that cater to the new frugality. Stocks like McDonald's (MCD), Amazon.com (AMZN) and even Google (GOOG) all occupy a unique niche in this "frugal nation," as do these seven other frugal stocks.
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