RetailWire’s Retail Stock Portfolio Challenge: 4Q07

Discussion
Oct 01, 2007

By Rick Moss

With our signature Discussion format, RetailWire has become a popular platform for exploring the philosophical, the ideological and even the ethical nuances of the retailing world. This type of theorizing is important, and yet, sometimes it’s refreshing when someone just “puts their money where their mouth is” – so to speak. We threw down the gauntlet before three of our BrainTrust panelists. The challenge: give us a stock portfolio of up to four retail companies with the goal of getting the best return on an investment on $100,000 (that’s fantasy dollars) for the fourth quarter 2007. (Special thanks to Mark Lilien, one of our panelists, for this idea.)

This is strictly a “sporting competition” (the usual disclaimers apply…please see below)… so please keep in mind that our contestants are not trying to pick the most worthy or well-run companies, although that undoubtedly factors into their decision-making. The only thing that matters is the total return — whether sold long or short — at the end of the quarter.

Here are their picks for the upcoming quarter, which will be held for the duration; no trading allowed during the review period. As stated, these must be retail stocks, hereby 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. At the end of quarter, we’ll start a new Discussion to shower praise upon our ruthless victor (or just marvel at his good luck).


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

My portfolio assumes economic difficulties in the U.S., stemming from the wars, home value declines, and related finance problems. U.S. retailing suffers from excessive competition amid an uncertain economy.

Wal-Mart De Mexico (WMMVY) has 948 locations, a terrific return on capital, and continues to build new locations. Its management of rapid growth is outstanding. (Investing $25,000)

Shoppers Drug Mart (TSE:SC) was called the best-managed retail chain in Canada. It’s simultaneously growing its private label programs, store locations, and famous brand cosmetic assortments. Its folks sell cosmetics in a customer-focused unbiased manner, because their compensation isn’t brand-dependent, unlike U.S. department stores. (Investing $25,000)

Sears Canada (TSE:SCC), I believe, is reversing five years of negative comp sales trends. In the second quarter, they had positive comps. (Investing $25,000)

eBay (EBAY) does half its business outside the U.S. It’s one of the best run retailers in the world. Its feedback feature is a tool many retailers should emulate. (Investing $25,000)


Portfolio #2 – David Livingston, Principal, DJL Research

Three of my four picks will all be short positions – A&P, Winn-Dixie and Sears
Holdings – plus a long position for Kroger.

A&P (GAP) – An ineffectual retailer based on past results. A&P will have difficulty
in acquiring Pathmark and it will cost more than they think. (Shorting $25,000)

Sears Holdings (SHLD) – The fourth quarter will be tough for Sears and I
don’t expect good news coming after Black Friday. (Shorting $25,000)

Winn-Dixie (WINN) – Rouses entry into New Orleans will be a tough blow
to Winn-Dixie. They will continue to post the same weak results they posted
prior to bankruptcy. Several new competitive store announcements will be
made in Louisiana and the Mississippi Gulf. (Shorting $25,000)

Kroger (KR)
– Kroger is getting a lot of positive attention, which should result in some
strong buying. And they have the fundementals to back up the good attention.
(Investing $25,000)


Portfolio #3 – George Whalin, President & CEO,
Retail Management Consultants


It’s an interesting time to be picking retail stocks with the situation in
the housing market, uncertainty in the overall economy, and the very real
possibility of an anemic holiday shopping season. My picks may be more of
an exercise in asset protection than asset growth, but here goes anyway.

J. Crew Group (JCG) – Under the guidance of CEO Millard “Mickey” Drexler, the
company operates 240 stores in the U.S. plus 45 in Japan. In recent years, the
company has undergone a renaissance with new merchandise offerings and refreshed
stores. Merchandise sold in the company’s stores is exclusively their brand.
(Investing $25,000)

Kohl’s Corporation (KSS) – The company operates 825 discount department
stores across the country. With great attention to keeping operating costs
low, the stores sell moderately priced name-brand and private-label apparel,
shoes, accessories and house wares. Name brands include Nike, Levi’s, and
an exclusive line by designer Vera Wang. (Investing $25,000)

Nordstrom (JWN) – As one of the nation’s best-known and largest upscale
apparel and shoe retailers, Nordstrom operates nearly 100 stores and 50
outlet stores. Additionally the company operates a catalog and internet
business. Best-known for its superior service, Nordstrom continues to grow,
opening a few stores each year in carefully selected locations. (Investing
$35,000)

Village Super Markets (VLGEA) – This small chain of 23 ShopRite
supermarkets operates in New Jersey and Pennsylvania. Each store is approximately
40,000 square feet with departments offering perishables, baked goods,
sushi, take-home hot meals, and a salad bar. As a member of the Wakefern
Food Cooperative, the company is able to take advantage of large quantity
buying opportunities. (Investing $15,000)


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 Question: Which of the three portfolios do you
think will show the greatest return on investment at the end of the fourth quarter?
Are there any obvious “misses” in their positions or missed opportunities?

Please practice The RetailWire Golden Rule when submitting your comments.

Join the Discussion!

12 Comments on "RetailWire’s Retail Stock Portfolio Challenge: 4Q07"


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Dan Raftery
Guest
14 years 7 months ago

It is interesting that 2 of the 3 stock analysts are negative about U.S. retailers and the only upbeat one stayed mostly away from food retailers. Also interesting that no one picked Target Stores, where same store sales gains have been right up there with Kohl’s. Also, no one mentioned the big bubbles now in the supply chain from China. Conclusion: uncertainty about the fourth quarter is the only thing that is certain at this time.

Warren Thayer
Guest
14 years 7 months ago

This is more fun, and no doubt more random, than the football pools. I voted with David, but they all sounded good. (My wife handles our money, as she’s much smarter.) The one missing thing…another “competitor,” made up of totally random picks via throwing darts at a stock listings page. The NY Post did this some years ago, pitting Wall Street experts vs. the dartboard, and I think the dartboard beat most of them.

David Livingston
Guest
14 years 7 months ago
I like George’s pick of Village Supermarkets. It hardly trades and just the positive comments by him might cause a few buy orders to go in and the price to go up. Although they are doing well, their stock price is more of a supply/demand of outstanding shares. A very smart pick. I realize that Nash customers might wait until after the holidays to make an announcement on defecting so that is a risky call. Winn Dixie I see trending downward lately and I think it will lose the backing of analysts that had been promoting it. The reality that their remodels are ineffectual is starting to set in. Sears Holdings–gut feel again. Every store I visit is totally dead open to close. I see no meaningful attempt to compete. A&P–the only thing that has gone up is the stock price at that company. I just wish Wegmans and Wal-Mart could build stores a little faster. I could have just cheated and picked Perry Caicco’s choices at CIBC. He does an excellent job of researching… Read more »
Susan Rider
Guest
Susan Rider
14 years 7 months ago

I liked George’s picks also. Target is an omission; they will probably see some gains as they enter the food world and gear up on their supply chain infrastructure, servicing the grocery side of the business. There also may be some retail stocks that are inflation proof like the budget dollar store markets that will see some gains.

Dan Gilmore
Guest
Dan Gilmore
14 years 7 months ago

Boy, one quarter is tough…hard to know what is going to pop a stock in that time frame. In general, in a short time frame contest, you are better shorting some stocks, or picking stocks that have some potential news or event that might send the stock sharply upward (e.g., it’s rumored as a takeover target, it’s rumored to be selling off a division or something).

My only real comment is that this highlighted some stocks I might take a look at, especially Wal-Mart Mexico. I didn’t realize this traded separately. From what I have heard, it is doing well. Thanks for the tip!

Paula Rosenblum
Guest
14 years 7 months ago

Going with Bachelor #3. The more I see of Kohl’s the more I like. J. Crew still has plenty of upside (and no doubt Mickey Drexler is having the time of his life) and I can’t bet against Nordstrom and high-end merchandise. All three are making strong use of technology as well.

I don’t know Village Supermarket, but I assume it’s of the same ilk.

Janet Dorenkott
Guest
Janet Dorenkott
14 years 7 months ago

I’ll go with Mark’s picks. I also believe that eBay will continue to be strong (especially over the holiday season). However, I’m a bit surprised that they all seemed to focus mainly on Department and Food stores.

My own personal favorite would be Apple. Steven Jobs was told it would never work. But today, he has stores that generate sales over $4,000 per square foot. Tiffany’s generates over $2,000. Best Buy is also strong and I believe lead to the demise of CompUSA. iPods, jewelery and electronics make for excellent Christmas gifts!

Rick Moss
Guest
14 years 7 months ago

Editor’s note: One of David Livingston’s original picks, Nash Finch, has been disqualified because the company doesn’t fit our retailer definition. David has replaced it with an investment in Kroger.

Theresa Fortune
Guest
Theresa Fortune
14 years 7 months ago
Ohhh! How do I loooooove this stuff! I have to go with George’s selection. Before I even read the criteria for this game I automatically thought J Crew. This company is a positive trending company that has a clear definition of their customer. It has the right knit trends in women’s apparel, and with the addition of Crew Cuts, children’s apparel, this will only help enhance their sales. I agree with the Kohl’s and Nordstrom selection. But I have to say not selecting Apple is a big miss. I have been following their stock, and if you look at the sheer increase in the value of the stock from just the past couple of months I believe there is promise for a “very nice” fourth quarter. Furthermore, they are now aggressively expanding into the Asian markets and abroad where the real growth and money lies for Apple to continue its success! I agree with Dan in my surprise to not see Target selected, but in looking at their past fourth quarter sales, the upside is… Read more »
John Lansdale
Guest
John Lansdale
14 years 7 months ago

It may not be fair. I’m voting after the $1.7b eBay Skype loss news, so while foreign growth is tempting, portfolio #1 will be starting with a handicap. Portfolio #2 has too many long shots. This isn’t million dollar challenge with shorts allowed. Portfolio #3 includes some hot retailers with boom potential, which I have noticed myself.

Rida Grijalba
Guest
Rida Grijalba
14 years 7 months ago

Investor #3 in my opinion. I have been watching retailers’ stocks for a while as well as their overall business operations, finance etc. that keeping them successful in business.

victor martino
Guest
victor martino
14 years 7 months ago
My portfolio: Date Picked: October 13, 2007 Whole Foods Market, Inc. The stock is up 48% since Whole Foods’ acquisition of Wild Oats Markets. Whole Foods owns the supernatural retail grocery category and the stock will continue to boom. Today’s share price = $51.50 Supervalu, Inc. Supervalue stock is currently at a low. However, the company is getting its integration of Albertsons completed and has excellent value as a company. It just needs to be unleashed. The stock will take off soon. Today’s share price= $35.49 Tesco PLC. Tesco is doing many smart things at home in the UK and internationally. The new Fresh & Easy Neighborhood markets in the U.S. and the “Express” format (similar) internationally are just two of those smart things. Tesco also is the international leader in green marketing (Wal-Mart is close) and this will begin to pay dividends for the retailer and add value. Warren Buffet (through his Berkshire Hathaway) now owns about 3% of Tesco (about $1 billion in value). I agree with Warren on Tesco.
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