ALSO - Leckey's Q&A
Successful Investing
by Andrew Leckey
My
early warning system for the holiday shopping season has been
triggered:
I've just ordered fancy
Christmas wrapping paper from two different mothers seeking to
raise money for their youngsters' elementary schools.
The key to the U.S.
economy is whether we consumers eventually decide to use our
rolls of festive paper to wrap an array of gifts, or simply let
them remain in cellophane in our closets for another year.
Enormous bets, which may or may not pay off, have already been
placed on the positive buying attitude of consumers about spending
on others and themselves.
Great expectations
have boosted the retailing stock group 23 percent this year,
while the auto manufacturer group is up 19 percent and auto parts
makers have risen 26 percent.
Everyday people must
continue to buy the products of all these companies with their
hard-earned money to keep this momentum going. Unfortunately,
consumer sentiment has lately been weighed down by rising gasoline
prices and mortgage rates and continued jobless worries. Caution
is in the air.
"We think consumer
confidence will be boosted by signs of economic recovery and
that a loosening of purse strings will lead to more aggressive
fourth-quarter spending," said Jeffrey Stein, retailing
analyst with McDonald Investments in Cleveland. "Be sure
to watch the fall retail sales closely, because if the recovery
we started to see in back-to-school sales isn't sustained, there
could be some risk in the shares of the retailers"
Since we're all consumers
and often don't plan our purchases ahead of time, predictions
about our spending patterns are rather suspect.
"The solid performance
of the stock market since late spring has bolstered consumer
confidence, but if the market gave back some of its gains or
there was bad economic news, the tide could change," cautioned
Richard Jaffe, apparel retailing analyst with UBS Warburg in
New York. "Retailing stocks historically are highly volatile,
with the release of monthly sales figures heightening their near-term
volatility."
Car sales have shot
off the charts, more because of bargain deals rather than enthusiasm
about the economy.
"If you strip
away all the incentive deals that are currently fueling auto
sales, the underlying demand is just OK at best," said Kevin
Tynan, auto analyst with Argus Research in New York. "In
addition, it seems as though the domestic automakers decide what
they want to build and basically hope that consumers will buy
it."
Cut-rate car deals
mean many shiny new cars in driveways, but not necessarily happy
days for those who make them.
"Despite the high
sales volume in auto sales, it's been a profitless prosperity,"
observed Efraim Levy, senior auto analyst with Standard &
Poor's in New York. "The Big Three U.S. automotive operations
haven't performed well, though they have made a lot of money
in the finance part of the business."
On the positive side,
Americans are at least looking good. The fact that women and
men are sprucing up personal wardrobes has helped retailers.
For example, women's
apparel makers AnnTaylor Stores (ANN) and The Talbots
Inc. (TLB), helped by a resurgence of tailored, career-oriented
clothing, have become favorite stocks of Jaffe. Similarly, The
Men's Wearhouse Inc. (MW) is gaining market share
thanks to slick advertising and a trend toward men dressing up
a bit more than in past years, said Jaffe.
Discount retailers
have performed especially well. Consolidation in the beleaguered
department store industry has encouraged name-brand apparel companies
to send more items to discounters.
The TJX Cos.
(TJX), an off-price retailer of national-brand apparel and home
fashions best known for its T.J. Maxx and Marshall's chains,
is a Jaffe stock choice. Closeout retailer Big Lots Inc.
(BLI) and Shoe Carnival Inc. (SCVL), a retailer of family
footwear well-known for its enormous inventory, are both Stein
choices.
Meanwhile, Cole
National (CNJ) in vision care retailing and Zale Corp.
(ZLC), which sells jewelry through its Zale, Piercing Pagoda
and Bailey Banks & Biddle stores, are also recommended by
Stein.
The car industry's success story may be a mirage.
Levy doesn't currently
recommend any shares of the Big Three U.S. carmakers and Tynan
actually has "sell" ratings on all of them. On the
other hand, analysts do see solid prospects for car parts manufacturers,
who tend to retain more profit from what they make then the ever-discounting
carmakers do.
For example, shares
of Gentex Corp. (GNTX), a maker of automatic-dimming rearview
mirrors and fire protection products employing electro-optic
technology, are recommended by Levy.
He also likes Johnson
Controls Inc. (JCI), manufacturer of building control systems
and automotive supplies such as seating and instrument panels;
and Lear Corp. (LEA), maker of automotive interior systems
and components. Delphi Corp. (DPH), a global supplier
of vehicle electronics and transportation components, is a Tynan
favorite.
None of the stocks
are owned by the analysts recommending them.
Of course, if all of
us consumers don't feel upbeat a few months from now, all bets
are off.
"A jobless economic
recovery would probably be the worst of all scenarios,"
said Tynan. "Consumers will stay resilient through problems
such as a bad stock market, but they'll back off the big-ticket
items if they're insecure in their jobs."
Editor's Note: Andrew
Leckey's column, "Successful Investing" appears regularly
in the print version of The Bull & Bear Financial Report.
