On Again, Off Again: The Impact of Retail Sales Figures
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Like a seesaw, the National Retail Federation has teetered between disappointing holiday sales, so-so, and a banner season. As you may have heard, apparently it's back to “banner” this year with retail sales expected to climb as much as 3.8% vs. the 2.8% predicted a few minutes ago. Okay, that’s a bit of an exaggeration, but you get the idea. Combine the revised numbers with positive inflation news released earlier today and things are lining up nicely.
The only aspect of this flip-flopping that’s surprising was that it took them so long. With the numbers we’ve seen from the usual cast of online sales characters, along with large brick and mortar stalwarts like Wal-Mart (NYSE: WMT) and Target (NYSE: TGT), our suggestions this past week or two have all been predicated on solid consumer spending and the impact of that on the holiday season. I won’t lie to you; it’s nice to be vindicated once in while.
So now we can move forward and determine how best to utilize this information. Not surprisingly Wal-Mart, Target and Costco (NASDAQ: COST) have all reacted favorably to the news. As we’ve discussed in earlier articles these stocks warrant serious consideration. However, it’s often the ancillary companies that provide the greatest opportunity for growth in these instances. Since we’ve covered the upside potential of FedEx and UPS recently, it’s time to explore who else is poised to gain in the near term.
There’s one industry in particular that could head into 2012 flying high, and that’s credit card companies. Banks, as you well know, are pushing credit cards in lieu of lower revenue generating debit cards after October’s imposed fee limitations. That, combined with consumers getting out and about with credit cards in hand, bode well for the industry.
Discover (NYSE: DFS), Visa (NYSE: V) and Mastercard (NYSE: MA) are all solid bets, but DFS is the one to watch. With a P/E of 5.9, which is about a quarter of Visa and Mastercard, it certainly has the most upside. Add to that a 1.67% dividend, which far exceeds Visa or Mastercard, and you’re left with strong company on the rise.
Finally, even with the run-up after announcing ridiculously good earnings today Discover is a $30 stock that’s trading a touch under $24. DFS management recognizes this too; part of today’s announcement included confirmation of the company’s intention to repurchase shares. They know a good deal when they see it. And with each successive retail sales figures release, DFS stands to benefit the most.
The investment opinions included are just that, opinions. Tim is not a licensed investment professional, nor has he been for several years. Investing involves risk, as you well know, so consider your decisions wisely.