Credit Suisse sees a horrific future for the economy, the US consumer, and retailers:
Make no mistake about it. The outlook is disturbing, stagflation is a real problem, rebate checks are masking underlying negative trends, retailers have not planned for $150 oil and there is a high likelihood of earnings being down for retailers in 2009 following a down year in 2008. The rise in oil prices combined with inflationary pressures moves us into unprecedented periods, with lower discretionary spending likely to pressure hardlines more than other retail segments as consumers move their spending towards necessities including food and gas.
However, with weakness comes opportunity. Credit Suisse thinks some retail stocks will become so hated that they’ll be worth buying–and predicts disaster for the others:
So yes, things are dire, yes we need to cut numbers one more time as we are doing today, and yes many of our retailers will have down earnings next year. But as they say, it’s darkest before the dawn. So as more and more experts shun this segment, we recommend to pick the winners that combine consolidation, poor expectations and valuations that incorporate declines through 2009. We would include GameStop (GME), Lowe’s (LOW), Staples (SPLS), and O’Reilly Auto (ORLY) as leaders in a small group that fit this bill. On the other hand, we see a handful of hardlines where earnings downside may not be fully reflected in the stocks. These include the following: PetSmart (PETM), Office Depot (ODP), CarMax (KMX) and Sears (SHLD).