Here is an interesting scenario. Consumer spending has been fueled by home equity extractions over the past few years. While home builders are trading near their lows, the retail sector continues to trade near it's high's. This trend will not continue as many retailers continue to warn, disappoint, and ratchet down earnings expectations.
Residential Construction Stocks
Residential Construction Chart
Top Holdings
BEST BUY
COSTCO
CVS CAREMARK
MACY'S
HOME DEPOT
KOHLS
LOWES
TARGET
WAL MART
WALGREEN
On June 5th, Wal-Mart announced a huge stock buy back of $15 billion, but also said that they would reduce the number of new super centers to be opened this year by nearly 30 percent. Initially the stock jumped from the $46-47 level to around $50-51.
After buyback news broke, investors piled into WMT shares only to see the stock trade right back down to the $47-48 range. This tells me there is something happening in retail that is much more serious than what we are being led to believe.
Today, Best Buy said it would immediately start buying back $5.5 billion in stock, and raised its quarterly dividend by 30%. The stock is up 3.3% today, but will BBY shares follow Wal-Mart's lead and settle back down in a few days?
No one can argue that both companies are great franchises, but I would rather buy both stocks in the low $40's.
