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It's time to re-enter the retail sector, from an investment standpoint, but only selectively, and a good starting point is Williams-Sonoma Inc. (WSM). The argument here is that higher-end retail chains like Williams-Sonoma will bounce back sooner than general consumer retail. Hence, the "frugal consumer" trend remains in force, but high-end consumers, encouraged by a recovering U.S. economy, will start to part with a few more bucks at the mall in 2010.
Look for a snap-back in the namesake Williams-Sonoma chain (264 stores). The sales outlook is less certain for the Pottery Barn (204 stores) brand. Inventory optimization and better cost controls add to the positive story. The First Call FY2010/FY2011 EPS estimates for WSM are 56 cents to 82 cents.
Technically, Williams-Sonoma's stock chart displays a recovery from the stock market's nadir days of March, when the stock traded below $7, and a break through $20 psychological resistance is encouraging. True, WSM is vulnerable to year-end profit-taking, but the calculation here is that gap-up support at $17 should hold, which tips the risk/return needle in favor of the Buy.
Stock Analysis: Williams-Sonoma is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in WSM now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your WSM position before February 2010. Sell/stop loss if you were to buy shares in this company: $8.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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