Industry Rank Analysis 07-07-10
To hear the news — and most of the market commentary — it seems as if it is a sure thing that the American consumer is dead and the economy is headed back into a double-dip recession. However, if that is the case, then why are the analysts so bullish on the Retailers? More strikingly, it is some of the most discretionary parts of retail where analysts are raising their estimates the highest.
The Zacks industry classifications are very fine, with 256 different industries tracked. It is not particularly noteworthy if a single small industry shows up doing well — a single firm with good news can propel a one- or two-firm industry to the top of the charts. It is interesting when you see a cluster of similar industries at the top of the charts, particularly when those industries seem to be running counter to the prevailing “market wisdom.”
Five “retail industries” are in the top 30 of the 256 industries tracked and all have improved their position over the last week. They range in size from four firms to 43 firms. They are not all downscale, bargain-basement type shops, either.
The Home Furnishings and Furniture retailing industry is in second place — an improvement of two spots — with an average Zacks score of 1.80, unchanged from last week. While furniture is a pretty discretionary category, even more so is Jewelry, which is in a tie for third place with an average score of 2.00. It jumped 57 spots to land in that position this week.
Consumer Electronics is in 11th place with an average score of 2.20. Its average rank was unchanged, but it improved 5 spots on the week. The regional Department stores are in 24th place, a 12-spot gain with an average score of 2.43. The Apparel and Shore retailers are in 28th place, but given how much larger that segment is (43 firms), and average score of 2.47 is still very impressive.
If the analysts are raising their estimates for stores that are very easy to pass by when times are tough, it would seem to indicate that the U.S. consumer is doing much better than he or she is given credit for. Yes, consumer confidence measures might have slumped a bit, but what people say in surveys and what they actually do as consumers are often very different. It is the actions, not the words, that drive the economy.
The tables below show the Retailers from the industries mentioned above with Zacks #1 Ranks. Most of the names here are small-caps, but there are a few mid-caps available. All but one of the firms shown are expected to have higher earnings next year than this year, and most have low P/E ratios, particularly if you are willing to look out to next year.
Zacks #1 Ranked Stocks
| Company | Ticker | Market Cap ($ mil) | P/E Using Curr FY Est | P/E Using Next FY Est | % Change Curr FY Est – 4 wk | % Change Next FY Est – 4 wk | Current Price |
| Williams-Sonoma | WSM | $2,568 | 15.18 | 13.42 | 0.00% | -0.13% | $23.74 |
| Signet Grp Plc | SIG | $2,351 | 11.8 | 10.55 | 1.01% | 0.13% | $27.49 |
| Dillards Inc-A | DDS | $1,389 | 10.19 | 10.75 | 0.76% | 0.00% | $20.27 |
| Saks Inc | SKS | $1,149 | 341.48 | 33.85 | -20.69% | -1.69% | $7.14 |
| Mens Wearhouse | MW | $960 | 13.65 | 12.19 | 10.77% | 8.41% | $18.24 |
| Hhgregg Inc | HGG | $817 | 14.77 | 11.89 | -0.25% | 0.00% | $20.74 |
| Talbots Inc | TLB | $709 | 12.14 | 8.89 | 13.23% | 5.34% | $10.10 |
| Pier 1 Imports | PIR | $686 | 9.39 | 8.43 | 35.87% | 12.06% | $5.87 |
| Genesco Inc | GCO | $607 | 11.28 | 9.84 | 0.00% | 0.00% | $25.09 |
| Citi Trends Inc | CTRN | $478 | 17.61 | 14.93 | 0.09% | 0.09% | $32.25 |
| Stage Stores | SSI | $402 | 11.1 | 10.02 | 0.00% | 0.00% | $10.52 |
| Kirklands Inc | KIRK | $296 | 8.91 | 7.96 | 0.00% | 0.00% | $14.93 |
| Shoe Carnival | SCVL | $240 | 9.87 | 8.68 | 0.44% | 0.48% | $18.18 |
| Kenneth Cole Pr | KCP | $209 | 22.56 | 16.23 | 11.59% | 18.89% | $11.58 |
| Conns Inc | CONN | $125 | 7.7 | 6.42 | 0.00% | 0.00% | $5.56 |
| Sector | “This Week’s Zacks Rank ” |
“Week ago Zacks Rank ” |
“FY10 Revisions Ratio ” |
“FY10 Estimates Revised Up ” |
“FY10 Estimates Revised Down ” |
“FY11 Revisions Ratio ” |
| Retail-Wholesale | 2.81 | 2.81 | 0.75 | 198 | 263 | 0.72 |
| Construction | 2.81 | 2.97 | 0.87 | 52 | 60 | 0.64 |
| Transportation | 2.83 | 2.9 | 1.76 | 174 | 99 | 2.96 |
| Consumer Discretionary | 2.84 | 2.74 | 0.72 | 123 | 171 | 0.65 |
| Conglomerates | 2.88 | 2.52 | 0.72 | 13 | 18 | 1.08 |
| Computer and Technology | 2.91 | 2.86 | 1.3 | 348 | 268 | 1.17 |
| Basic Materials | 2.92 | 2.85 | 0.83 | 130 | 156 | 0.93 |
| Business Services | 2.94 | 2.99 | 0.86 | 80 | 93 | 0.73 |
| Industrial Products | 2.98 | 2.8 | 0.98 | 91 | 93 | 1.19 |
| Auto-Tires-Trucks | 2.98 | 2.53 | 1.11 | 42 | 38 | 1.38 |
| Aerospace | 3.05 | 3.13 | 0.38 | 9 | 24 | 0.93 |
| Finance | 3.06 | 3.13 | 0.66 | 359 | 541 | 0.58 |
| Medical | 3.06 | 3.09 | 0.59 | 141 | 238 | 0.76 |
| Oils-Energy | 3.1 | 3.1 | 0.52 | 216 | 418 | 0.43 |
| Consumer Staples | 3.17 | 2.99 | 0.54 | 85 | 158 | 0.45 |
| Utilities | 3.18 | 3.12 | 0.77 | 57 | 74 | 0.76 |
In evaluating the Zacks Industry Ranks, you want to see two things: a good overall score (low, meaning more Zacks #1 and #2 Ranked stocks than #4 or #5 Ranked stocks) and some improvement the relative position from the prior week. It is also helpful to understand exactly what the Zacks Industry Rank is.
The Zacks Industry Rank is the un-weighted average of the individual Zacks ranks of the firms in that industry. It does not matter if the stock is the 800 lb gorilla that dominates the industry or some very small niche player in the industry — they have the same influence on the industry rank.
Also, that means that the bigger the industry in terms of number of firms, the less influence any given company has on the industry rank. It also implies that small industries, with just two or three firms, should be the ones found at either the top or the bottom of the list. After all, if there are only two firms in the industry, it is relatively easy to get a Zacks rank of 2.00 (i.e. one with a Zacks Rank of #1 and the other with a #3). Right now, that industry rank would be tied for 6th place among the 255 industries tracked.
The same obviously goes for the bottom of the list as well. If there are 50 firms in the industry, and it ends up at one of the extremes, that means there has to be something pretty significant going on. Thus, I do not always focus on the very highest rated industries, but on the highest rated ones in which there are a large number of firms.
Click here for the Zacks Industry Rank List: http://www.zacks.com/zrank/zrank_inds.php
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.
