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There Is an Element of Fatal Attraction in Retail Investing: Market Recon

"Defense to me is the key to playing baseball." -- Willie Mays

For the Love of The Game More than 400 companies currently residing within the S&P 500 have now reported results for the second quarter. The season has gone rather well to date. Of those 400 plus companies, 72% have beaten EPS (Earnings per share) expectations to the upside. Earnings growth is now running at a hot 11.6% year over year, which itself is ahead of expectations. Revenue? Glad you asked. Revenues are fairly hot as well, up 5.2% on a year-over-year basis. You may recall that a couple of weeks back, expectation for yearly growth were skating around 9% for earnings, and in the mid-fours for revenue. Now as "earnings season" enters its final stage, we hand the ball off to the retailers as much as we do any other group.

The beleaguered retailers? Not so fast. Or, to seem sophisticated, "au contraire." The migration of shoppers from brick-and-mortar retailers to e-commerce is no longer a new trend. Neither is the "stay-at-home" economy that continues to develop. You've all seen the backyard pummeling taken by the movie industry. "Retail earnings season" always fascinates me. The names are such that every small investor is familiar with them, and quite possibly has an opinion on that is not necessarily related to fundamental, nor technical analysis. The fact that you may not rely on such analysis brings an element of fun back to this sport. For the love of the game. What draws us to certain retailers? What about ourselves do we see in an underdog that shows up early for a fight with the big kid after school? What makes us root for a struggling firm that won't just go away, as if they were a losing sports team?

While there is this element of fun, and possibly a fatal attraction as well, one must divorce oneself from such feelings. The group is troubled. Myself? I am long the shares of Kohl's (KSS) and Walmart (WMT) for different reasons. They are the only two individual retailers that I am long, except for the Home Depot (HD) , which I consider completely different all together. The ability to maximize assets (KSS), or the ability to fight the big kid (WMT). Both work for me. Surprisingly, these have been two of my better long side trades of the Summer. KSS reports later this week, along with Macy's (M) and Nordstrom (JWN) . Walmart and Home Depot bring up the rear of the group next week, with WMT's more traditional rival, Target TGT. The stocks of these retailers have for the most part done well over the past month or so. So has the corporate debt of these firms, which, at least to this...