Holiday sales probably will grow at a slower rate this year than last. That might present an opportunity for investors prepared to guess they’ll be better.
Most investors aren’t expecting a strong shopping season in the U.S. because of unemployment that’s remained above 8 percent since February 2009 and ambiguity about future tax rates, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago, part of the BMO Financial Group that oversees about $60 billion of assets.
Even so, now is the time to consider a trucking stocks strategy because these conditions might offer a favorable risk-reward, he said.
“Everyone associates retail stocks with the holiday season, but trucking companies may be a smarter play for a positive surprise from the consumer,” Ablin said.
Truckers are “an interesting” opportunity because their shares have trailed the market since 2009, reflecting pessimism about the economy; meanwhile, retailers have enjoyed an “enormous rally” — a sign more optimism has been priced into these stocks, he said.
Retail sales, excluding restaurants, vehicles and gasoline, rose 0.9 percent last month from June, the biggest gain since January, based on data from the Census Bureau. Robert Dye, chief economist at Comerica Inc. in Dallas, estimates they might increase an inflation-adjusted 2 percent to 3 percent in November and December, the traditional holiday rush, compared with 2.7 percent last year.
“It’s not doom and gloom, but it’s not a robust forecast, either,” Dye said, adding that holiday sales rose as much as 4.7 percent on an inflation-adjusted basis in 2005.
Weak consumer confidence is hurting discretionary spending and probably will continue through the rest of this year because of anemic job growth, he said. The U.S. faces higher taxes and reductions in spending on government programs that will take effect at year-end unless Congress acts.
The Bloomberg U.S. Asset-Heavy Trucking Index — with 14 companies including Knight Transportation Inc. and Werner Enterprises Inc. — has lagged behind the Russell 2000 Index by about 51 percent since Dec. 31, 2008. In the same period, the Standard & Poor’s Retail Select Industry Index has led the broader S&P 500 by 146 percent.
Trucking stocks continue to trail the Russell 2000 and now are at the same “key support level” as a year ago, in part because earnings for several companies — including Werner and Con-way Inc. — were weaker than investors anticipated, said Jim Stellakis, founder and director of research at New York-based Technical Alpha Inc.
Although investors might be wary about identifying this level as a bottom, trucking stocks last year outperformed the Russell 2000 by 10.6 percent between mid-September and Dec. 30, when their performance was previously this low, he said.
Based on the depth of the current underperformance, investors appear to be bracing for “very anemic volume growth,” said Art Hatfield, an analyst in Memphis, Tenn., with Raymond James & Associates.
The rally in the retail index has stalled after it broke an uptrend that began in February 2011, indicating investor sentiment has become a little bearish in recent months, said Stellakis, a chartered market technician. “Retail stocks may be a group investors are looking to underweight now.”
Gross domestic product grew at a 1.5 percent annual rate in the second quarter, after expanding 2 percent in the period ended March 31. The jobless rate rose to 8.3 percent in July, the 42nd consecutive month above 8 percent; and consumer sentiment, measured by what Bloomberg calls its Comfort Index, fell to minus 44.4 in the week ended Aug. 12, the lowest since January.
One bright spot: The U.S. added 163,000 jobs in July, the most since February, after four consecutive months when gains trailed the median estimate of economists surveyed by Bloomberg.
Amid continued weakness in “big-picture drivers” of spending, investors are “a little squeamish” about what to expect from this year’s holiday sales season, said John Manley, chief equity strategist for Wells Fargo Funds Management in New York. Still, it “wouldn’t be unusual” for consumers to figure out a way to splurge, he said, adding that if shoppers can exceed what will probably be “fairly conservative” sales estimates, trucking companies might benefit.