Retail Sentiment and Antiquated Retail Stores
As a new year begins, consumers seem to be optimistic about the future, yet the retail industry data continues to offset the mindset of the customer. As of January 2017, consumer sentiment reached 98.5 (Economics). It is the highest reading since 2004, and it has risen roughly 41 points since 2008 (Economics). This survey is taken by the University of Michigan to gauge the mindset of the consumer. With this sense of optimism about the American Economy, brick and mortar retail companies have yet to see the rise in top line and bottom line growth.
Traditional retailers did not seem to see the results they were looking for in 2016, and guidance from companies is not giving a glowing picture either. Companies in the clothing store and department store sectors seem to not have taken the news over the years to change with the pace of technology and consumer opinions. According to Kiplinger, in-store holiday sales grew only 1.4 percent, while online grew 14% (Payne). If we take a dive into the census bureau data, retail sales growth was driven primarily by auto and gas sales (Census Bureau). Department store sales shrank 8.4 percent year over year (Census Bureau). Clothing store sales only grew 0.9 percent year over year (Census Bureau). Historically, these retail businesses were leading in growth, but times in which we live in will likely diminish these lines of business.
Fundamental Value by Country
The United States was one of the highest market returning countries in the world in 2016, but macro valuations on the United States are on the “rich” side compared to other international markets. As of December 2016, the US is valued 31st out of 40 countries based on valuations (Star Capital). The Shiller CAPE ratio for the US stands at 26.4. Historically, the US is around 17-18. US market Price to Sales and Price to Book are 2.9 and 1.9, respectably (Star Capital). Understandably, the United States makes up roughly 43 percent of the entire universe and it has depth to market valuations, yet it seems to garner attention to possible countries with value opportunities.
A couple of developed countries with lower valuations are Italy and Spain. Both Italy and Spain have had macroeconomic headwinds over the past 5 years, but from a value standpoint, Italy and Spain appear undervalued. Italy’s CAPE ratio is 12.7 and Spain’s CAPE ratio is 11.7 (Star Capital). These countries, relative to other developed markets, are undervalued by 42 percent and 46 percent (Star Capital). If we look at country market returns for 2016 using market cap exchange traded funds, Spain’s market was down 2.18 percent year over year, and Italy’s market was down 9.4 percent (iShares). It is still safe to assume there are other forces tugging on the companies within these countries, but there may be a case in macro fundamental value for Italy and Spain.
Compiled by the Camelot Portfolios Investment Committee
Darren Munn, CFA, Chief Investment Officer
Sarah Berndt, Portfolio Manager
Eric Kartman, Research
Matthew Moses, CAP®, President
Drew Steinman, CPA, Trader/Research
Frank Echelmeyer, MBA, CKA®, Advisor Consultant
-for Broker/Dealer and RIA use only-
Census Bureau. December Retail Sales Report. 2017. 2017.
Economics, Trading. Trading Economics. January 2017. January 2017.
iShares. Market Capped ETF. 2017.
Payne, David. Economic Forcasts. January 2017. 2017.
Star Capital. Global Stock Market Valuation Ratios. 2017. 2017.
The materials presented is for use by professional advisors only. It is not intended as informational and educational, and is not intended to be interpreted as investment advice. The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients. No investor or client reading these materials should view them as investment advice. These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general. Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio. All facts referenced herein are derived from sources believed to be reliable.
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