10 Retail Stocks to Sell, 1 to Buy

12.01.2009

Welcome to another edition of Stock of the Week, a FREE eletter sent out each Tuesday containing my in-depth analysis on the stocks that matter to you most—with no mysteries and no strings attached. (View complete Stock of the Week archive here.)

Thanks to all of you who emailed me over Thanksgiving break with stock ideas. Last week, when I gave you my top telecom pick, I asked you to send me an email at stocks@navelliergrowth.com with suggestions of which sector to tackle next. You must have had Black Friday on the mind because retail stocks really dominated my inbox! Most of you were bearish on the sector and asked whether specific stocks should be sold, so this week I’ll give you a list of the 10 worst retail stocks to sell now.

But not all retail stocks are suffering. I’ll also give you my absolute favorite pick in this industry. This stock is truly a diamond in the rough and should deliver big profits this holiday season and beyond.

Dump These 10 Retail Stocks Now

Remember, each week I cover stocks that you want to know about. So drop me a line at stocks@navelliergrowth.com, and let me know what stocks or industries you’re thinking about.

I’ve gotten a lot of messages lately about retail stocks, and it’s no surprise why. Consumer spending is on everyone’s mind, and it’s difficult to get a feel for how the holiday shopping season will play out. According to retail data analysis firm ShopperTrak, U.S. in-store retail sales on Black Friday grew 0.5% compared with last year. While any positive spending report is good news, sales on Black Friday 2008 increased 3% versus 2007, so this year’s half-percent rate of growth is comparatively slower. The bottom line is consumers are still being cautious—but we won’t be able to draw any fact-based conclusions until later in the season.

One thing is for sure: Not all retail stocks are affected by the current conditions in the same way. Certain luxury retailers or big-ticket vendors are really hurting, while discount chains or brands with strong customer loyalty continue to do well.

To keep you out of some of the worst stocks in the retail sector, here’s a list of the 10 worst retail stocks I want you to sell immediately:

1-800-Flowers (FLWS): True love is understanding when money is tight… and understanding that $50 is better spent on groceries than a seasonal bouquet.
Steinway Musical Instruments (LBV): Pianos can hardly be described as a consumer staple. A choice between paying the mortgage and buying a new baby grand isn’t much of a choice.
Ethan Allen (ETH): Big-box retailers may not have quite the craftsmanship as Ethan Allen, but they offer stylish home furnishings at a fraction of the price.
Callaway Golf (ELY): I sure do love golf, but even I have to admit that $800 for a set of irons doesn’t seem like the smartest buy right now if you’re on a budget.
Marine Products (MPX): If you think carmakers have a tough time getting Americans to buy new wheels right now, imagine convincing consumers now is the time to buy a $10,000 boat for joyriding only a few months out of the year.
Arctic Cat (ACAT): Take the previous statement and insert “snowmobile” instead of “boat.”
LeapFrog (LF): Even when you get past the parental disapproval of videogames, the bottom line is that you can buy an educational children’s book for less than $10, or a LeapFrog game system for $50 then an additional $20 for each game. You do the math.
Pool Corp. (POOL): It’s hard to justify spending thousands of dollars on a swimming pool when your mortgage is already under water.
Nautilus (NLS): Buy a treadmill for $1,000 or sign up for a one-year gym membership for half that… kind of a no-brainer.
Eastman Kodak (EK): This company has already been battered by the shift to digital photography, but now that it’s finally in the game, it faces a new threat: Smartphones. Why drop $200 on a camera when the same price gets you a gadget that takes pictures, sends emails, gives GPS directions and plays music?