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In early 2008, Toby Smith forecast a shift among consumers towards discount retailers; in ChangeWave Investing, he still looks to Wal-Mart (NYSE: WMT) and Fred's (NASDAQ: FRED) as the best way to participate in this ongoing trend.
"Consumers are worried about their jobs and about trying to build savings, so the last thing they are apt to do is spend frivolously.
"Early in 2008, our ChangeWave Alliance accurately picked up a major transformational shift in retailing as consumers began to increase spending at discounters. That shift became even more dramatic, as the economic downturn worsened in Q4 2008.
"Retailers recently reported their worst holiday shopping season in decades. Industry sales fell 2.2% for the holiday season, the biggest decline since 1970, and the number of retail bankruptcies is expected to increase during the next few quarters as a result.
"It's hard to imagine how much worse these numbers would have been if lower gas prices, extreme retailer discounts, pent-up consumer demand for discretionary items and a calendar shift hadn't all helped to stabilize sales.
"Retail store trends have consistently pointed to Wal-Mart as a retail winner. Along with regional discount retailer Fred's, these retail stocks will very likely remain steady performers throughout the current volatility, and further benefit once consumers begin to climb out of their spending malaise.
"Wal-Mart cut its Q4 profit forecast because lower consumer discretionary spending led to a December sales shortfall. Wal-Mart's CEO said he expects the U.S. economy to remain extraordinarily challenging in the first half of the year. Fred's said December same-store sales were flat compared to the –2% consensus.
"Still, our most recent Alliance consumer spending survey shows that WMT and FRED continue to be the two retail winners. Overall, this retail duo should weather the worst of the recession and benefit nicely from any increased spending, since the transformation in retailing is here to stay."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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