Stay Away From Retailers and Restaurants

January 10, 2008

As we start off the year, the market has taken a tumble and continuous talk of recession has spooked investors into beating down the Dow toward 12,500. If you’re bargain hunting, make sure to bargain hunt away from the retail or restaurant sector. Even if we aren’t in an official recession, we are definitely in a slowing economy. The first causalities will be retailers and restaurants since people will realize that they will need to cut down their materialistic purchases and amount of times they eat out in a given month.

On late Thursday, the retail sector reported weak December earnings. The holidays of 2007 marked the slowest holiday retail season since 2002 and many retailers failed to meet lowered earning expectations. With the down housing market poised to last longer than previously expected and a bottom nowhere in sight, retailers will have to go above and beyond to lure customers into their stores.

Ann Taylor (ANN), Macy’s (M), Limited Brands (LTD), Abercrombie (ANF), PF Changs (PFCB), Red Robin Gourmet Burgers (RRGB), Jamba Juice (JMBA), Target (TGT), Talbots (TLB), and many others better get ready for a rough first half of 2008. In the business world, the customer comes first so you better satisfy the customer or they’ll stay home. In previous entries, I advised to stay away from airlines and to stay away from homebuilders. I was very on target with both of those sectors and I foresee it being very tough until at least the start of summer for this sector. Why mess with retail when you have plenty of good options in technology, casinos, and energy?