Published on October 04 2017

Wait for This Signal Before Buying Retail Stocks

By Justin Spittler, editor, Casey Daily Dispatch

Nordstrom is tanking.

The high-end retailer’s stock plunged 6.3% on Monday. It’s now trading at its lowest price since June.

But let’s be clear about something.

Nordstrom’s troubles didn’t begin this week. They’ve been brewing for years.

Its sales have stalled since 2015. Its net income has been declining for the past five years.

Things have gotten so bad that the company tried to secure a $1 billion lifeline from private equity firm Leonard Green & Partners.

But that deal just fell apart.

On Monday, the New York Post reported that the retailer may now need to secure as much as $10 billion. That’s 10 times more than analysts expected.

• Nordstrom’s stock plunged 6.3% on the news…

Panic then spread to other department store stocks.

Kohl’s closed Monday down 2.3%. Macy’s fell 4.3%. Dillard’s fell 4.4%. And JCPenney dropped 5.8%.

These are huge one-day losses. But they’ve become the norm for these stocks.

After all, Kohl’s is down 44% since 2015. Dillard’s is down 62%. Macy’s is down 72%.

These are staggering declines.

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• And that’s exactly why I’m writing about these stocks…

You see, I don’t invest like most people. I’m a contrarian.

Like Doug Casey, I like to buy stocks other investors wouldn’t touch with a 10-foot pole.

This allows me to buy stocks dirt-cheap…and hopefully bag big gains.

And right now, retail stocks are some of the most beaten-down stocks on the planet.

But here’s the thing. I’ll never buy a stock just because it’s hated. For me to pull the trigger, a stock must do something critical first.

I’ll tell you what that is at the end of this essay. But let’s first look at why so many iconic retailers are fighting for their lives.

• Online shopping has clobbered traditional retailers…

Just look at this chart.

You can see that online shopping activity has exploded in recent years.

This is great for everyday people. It’s made buying clothes cheaper and easier than ever before.

But the rise of online shopping has pummeled companies like Nordstrom, Sears, and JCPenney.

That’s because these companies underestimated the internet. They were slow to adapt.

Now, Amazon and other online retailers are eating their breakfast, lunch, and dinner.

That’s a big problem. And it’s not going away anytime soon. But you must understand something…

• People aren’t going to stop shopping at brick-and-mortar stores entirely…

There are a few reasons for this.

For starters, people like trying on clothes. And a lot of folks simply enjoy shopping. It’s fun for them.

Because of this, many traditional retailers will survive the “retail apocalypse.” The best companies could even deliver huge gains when the industry recovers.

In other words, a massive buying opportunity is taking shape. And the time to strike could come sooner than people think. Here’s how I know…

• Retail stocks are some of the most hated stocks on the planet…

In fact, the short interest on retail stocks has doubled since the end of last year.

This is a big deal. You see, this metric measures how many investors have shorted (bet against) a stock. A high short interest means investors are bearish.

According to CNBC, the average short interest on retail stocks is now 15.6%. That’s the highest level since Lehman Brothers collapsed in September 2008.

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• This indicates extreme pessimism…

It means investors absolutely hate retail stocks.

But that’s not enough reason to buy them.

I want to see a stock first “bottom out” before buying. And that hasn’t happened yet.

Just look at this chart of Macy’s.

It’s still in free fall. Same goes for JCPenney:

Investors who buy these stocks right now are taking a huge gamble. They’re trying to catch a falling knife.

Those aren’t the kinds of bets I like to make. I’m going to wait until these stocks begin a new uptrend before diving in.

I’ll let you know when that time comes. Until then, stay on the sidelines.

Regards,

Justin Spittler
Delray Beach, Florida
October 4, 2017

P.S. I encourage you to read this essay I wrote back in July. It explains how to profit from the “retail apocalypse” today. Most investors haven’t even considered this investment. But it’s one of the best (and safest) ways to profit from this trend. Click here to learn more.


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