The One Stock Defying All the Odds

The One Stock Defying All the Odds

The cheapest supply house on earth’, the catalogue declared in 1894.

That statement was the title of the US’ very first mail order catalogue.

Thanks to the expansion of rail roads, discount postage for catalogues and free rural delivery, the Sears, Roebuck and Company department store changed the face of retailing in the US.

Their target: to access the rural consumer. The farming family cut off from rapidly urbanising hubs…

The result was completely redefining what ‘retail’ meant in the US.

Sears changed the face of retail again in 1925. More cars meant more people could travel greater distances. In turn, Sears set up the first retail department store in Chicago.

In fact, Sears’ retail strategy worked so well, that it wasn’t until the late 1980s that another department store out earned them.

Sears is arguably the company that kicked off the consumer economy in the US…

Is retail a dying business?

For half a century though, Sears was a technology disruptor.

Furthermore, Sears created the birth of catalogue culture. Shopping from the comfort from your own home for over century.

When the internet began allowing people to shop online, the entire US economy was already used to buying before seen.

This catalogue culture meant Americans were keen adopters of online shopping in the late 90s…long before Aussies were prepared to get on board with this trend.

The same department store that revolutionised consumerism in the US is facing bankruptcy today.

Sears isn’t alone either. A total of 19 US retailers have filed for bankruptcy by June this year. Five up on the same period before.[1] More to the point, almost 6,000 retails stores are closing their doors in the US alone.

The retail story is equally bleak here.

About 20 high-profile Aussie retailers tanked last year. And it’s tipped to be a similar amount again this year.

Official data backs up why this keeps happening.

Australia’s gross domestic product shows that consumption growth was only 1.5% for the year. Well down on the 25-year historical average of 3.5%… [2]

Source: The Guardian Australia

So imagine my surprise when I read that a fund manager from Platypus Asset Management said that they’re ‘backing the domestic economy’ and ‘buying up firms at the sharp edge of consumer spending’.

Their reasoning is, that more rate cuts from the Reserve Bank of Australia and increasing, will flow into consumer spending.

To be honest, that sounds a little ambitious. I honestly don’t think rate cuts and higher house prices will automatically pull the retail sector out of its slump.

In saying that, there may be a handful of companies that could weather the retail downturn reasonably well.

Three stocks to put on your watchlist

Long-time readers of the Daily Reckoning Australia know how bearish I am on the Aussie economy.

Former retail market darling Premier Investments Ltd [ASX:PMV] is down four bucks per share from it’s August high last year. PMV’s end of year results are due in a couple of weeks, and this company has a long history of surprising the market.

Their key brands — Peter Alexander and Smiggle — are expanding overseas and driving the company’s consistent revenue growth. Keep an eye out for this those.

Then there’s my favourite basket case stock — Myer Holdings Ltd [ASX:MYR].

Recent financial results saw the company post a net profit of $33.2 million, 2.2% higher than 2018.

However, you should note that the profit didn’t come from increasing sales. Revenue actually fell 3.5% for the year.

What this means is the company had a net profit by stripping out costs.

Sure the whole Myer supply chain is bloated.

But there’s only so many times you can reduce costs to impress shareholders. At some point Myer will actually need to increase sales revenue.

For now, that means MYR shares may be a good short-term trading opportunity as the share price reacts to this sort of news.

Then there’s the punt on house prices via Harvey Norman Holdings Ltd [ASX:HVN].

HVN shares tend to follow more in line with the value of Aussie house prices. Looser credit policies going forward will inadvertently help the HVN share price.

Plus HVN — through with their exclusive finance provider Latitude Finance — have just introduced a ‘buy now, pay later’ financial incentive for all goods under $1,000.

I don’t like the reliance on credit. Yet access to a buy now pay later service will likely boost HVN sales. It’s worth adding HVN to your watchlist if you haven’t already.

And then there’s the one stock that continues to defy market expectations…

Changing with the times

Experts are baffled.

How on Earth are JB Hi-Fi Ltd [ASX:JBH] shares at all-time highs? Didn’t the company hear there is a retail recession…

At least, that’s the sort of take I’ve been reading in the mainstream press over the last few months.

Over the past five years, JBH appear to survive every sell-off. There seems to be no bad news that can hold this stock down.

How come this electronics giant isn’t suffering?

Sure JBH sells big TVs and pricy cordless headphones we probably don’t need. But its core business sells everything we need.

Modern workplaces required modern day tools. And not just the laptops, but all the cords, storages and other whiz-bang devices we need to keep our digital businesses running.

More and more of us are altering how and where we work. And we can do that because of the portable digital tools. And JBH sells everything we need to do this.

JB Hi-Fi is no longer a discretionary retailer. Rather it’s morphing into a consumer staple.

The point is, it’s not that JBH changed, it’s that how we do business has.

And JB Hi-Fi has made the most of that. That’s why JBH continues to defy analysts and the rest of the retailer sector.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia