RetailWire’s Retail Stock Portfolio Challenge: 1Q08

By Rick Moss

It’s a new year, a new financial quarter and time to launch a new Retail Stock Portfolio Challenge. For this coming period, we’ve recruited a couple of fresh challengers for Mark Lilien (who is hoping to redeem himself after surrendering the lead midway through the last quarter to David Livingston).

For those just tuning in, here are the rules in a nutshell:

Each of three contestants creates a stock portfolio of up to four retail companies with the ruthless objective of getting the best return on an investment on $100,000 (that’s fantasy dollars) at the end of the calendar quarter. No trading is allowed during the review period, so they have to pick stocks and stick with them throughout. As stated, these must be retail stocks, defined as companies deriving at least 50 percent of their gross revenues from retail sales out of their own stores. (Examples: Starbucks – eligible; Ralph Lauren – not eligible).

We welcome your opinions on their choices – just submit comments as you normally would using the big, blue button below. We’ll check in weekly to see how the portfolios are fairing (see our email newsletter each Friday) and you can return to this page to add ongoing commentary.

Without further ado, here are this quarter’s picks:

Portfolio #1 – Mark Lilien, Consultant, Retail Technology Group

In last quarter’s Stock Portfolio Challenge, after 12 weeks, seven out of nine U.S. retail stocks declined. So here are four well-run non-U.S. retailers:

Distribution Y Servicio (DYS) – A $3 billion sales supermarket chain in Chile, their profits for the first three quarters are up 49 percent, and they’re merging with Falabella, a major department store chain. Both firms own financial services subsidiaries, a great plus for almost any retailer anywhere.

G-Market (GMKT) is a $167 million sales online shopping site in South Korea. Profits are over 10 percent of sales, with only 374 employees. South Korea is way ahead of the U.S. in broadband penetration and their economy is growing like gangbusters.

PriceSmart (PSMT) is headquartered in San Diego, but they have no stores in the 50 states. They run 24 warehouse clubs ($900 million sales) in the Caribbean and Central America (12 countries). It’s run by Bob Price, one of the founders of Price Club/Costco.

J
Sainsbury (JSAIY), the UK supermarket chain, has turned itself around. Their campaign, “Making Sainsbury Great Again,” shows excellent results: in the most recent six months, comp sales rose 4 percent, earnings/share rose 33 percent, and the dividend rose 25 percent. A few years ago, this company was a money-loser.

Portfolio #2 – Doron Levy, President, Captus Business Consulting

Home Depot (HD) – Here’s the deal with the Depot. Yes, there is a housing crunch and, yes, the subprime mortgage industry is collapsing but what we have to remember is that Home Depot is a retail operation and started off catering to the do-it-yourselfer. There is a major refocusing effort in bringing customers back to the store. I like this play only because we are at the 52-week low and I see some upside potential.

Canadian Tire (CDNAF) – The chain has polished up old stores and created
a new prototype that is easy to shop. Product assortment and quality has increased
since last year with a big push towards outdoor living. Tire is definitely
moving away from automotive (while still offering servicing and selling parts
through its own stores and PartSource) and more towards mass merchandise and
unique products. Also at around its 52-week low with some upside potential.

Target (TGT) – I’ve always liked Target’s business concept. While they still
focus on lower margin products, such as electronics, I’m seeing expansions
in the grocery and healthy living departments which should attract a more
diverse range of shoppers. I think we will see some upside in Q1 with Target
as they are hovering near their 52-week low.

Whole Foods Market (WFIM) – The best player in this sector is privately
held (and for good reason) – so I’m going with the next best thing. This
market is growing so nicely that I think we will see some explosive sales
in the coming quarters. Trading around its 52-week low makes it attractive.

Portfolio #3 – Eric Togneri, Principal, VP CPG Solutions, CPG CatNet

Carrefour (CRERF) – I like their position to capitalize on rapid expansion in Asian markets.

Circuit City (CC) – A rough close to 2007 puts them in a position to grow rapidly as the digital conversion marches forward in 2008.

Ulta Salon, Cosmetics & Fragrence (ULTA)- Trading at a near 52-week low, in a strong position to grow as folks splurge on low-cost indulgence. Consumer confidence will suffer as politicians fill the air waves with how bad it is now and how better it will be once they are elected. Pockets will still be full but cautious consumers will spend on high-end items with low out of pocket implications.

WARNING AND DISCLAIMER:

Stock recommendations and comments presented on RetailWire.com are solely those of the analysts and experts quoted. They do not represent the opinions of RetailWire.com on whether to buy, sell or hold shares of a particular stock.

Investors should be cautious about any and all stock recommendations and should consider the source of any advice on stock selection. Various factors, including personal or corporate ownership, may influence or factor into an expert’s stock analysis or opinion.

All investors are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance is no guarantee of future price appreciation.

Discussion Questions: Which of the three portfolios do you think will show the greatest return on investment at the end of the first quarter ’08? Do you see expect certain retail sectors or channels to do particularly well in the coming quarter?