Investors have known for more than a year that the worst is over and the future is bright. The stock market always looks ahead, so when it’s been rising as much as it has since the March 2009 bottom, you know good times are ahead.
The economy is just now catching up, with many leaders in the U.S. government finally providing some optimistic views. Jobless rates are still high, but many indicators, like consumer spending, are rebounding.
In fact, the U.S. Shopping Center Executive Business Barometer, a survey of mall owners and developers, recently showed that business conditions improved in March for the first time since July 2007.
On the heels of that announcement came this positive news from the Associated Press:
“MasterCard Advisor’s SpendingPulse show sales rose in most categories, including clothing, appliances and consumer electronics.
“The March figures benefit from relatively easy comparisons to March 2009, when consumers cut back on spending and shopped mainly for necessities and the stock market hit its recession low.
“Clothing sales rose 5.2% from a year ago, including a 4.2% rise in women’s apparel, the strongest number in that category since March 2007.
“Men’s clothing sales rose 9.3 percent and footwear rose 7%.
“Michael Niemira, director of research and chief economist of the International Council of Shopping Centers estimated that his group’s index of sales at stores open at least a year will rise 8% to 10%.”
We usually don’t pay a lot of attention to economic indicators, as the stock market is always looking to the future, and these figures are reporting the past. But it struck me as I read the Associated Press article that these figures coincide nicely with a trend in Cabot Top Ten Report: Lots of strong retail stocks.
Editor Michael Cintolo has been recommending a couple of stocks in this sector each week, from an urban footwear company to an upscale women’s clothing store. But the one that caught my eye was Lululemon Athletica (LULU). Here’s what Mike had to say about the stock when he first recommended it on March 15.
“Lululemon began life 12 years ago in Vancouver, British Columbia, as a designer and manufacturer of yoga clothing, and that remains its core business. But as the company has grown, it has expanded into apparel for running and general fitness, while preserving a human-centered philosophy that both customers and employees appreciate. Behind it all is founder Dennis Wilson, who serves as both chairman and chief product designer and owns 7% of the company. Today, Lululemon has more than 120 stores in Canada, the U.S., Australia and Hong Kong. It’s grown revenues every year since 2003, and while the growth is slowing, which is natural as a company gets larger, we believe it can continue for years. The challenge, as the company becomes more of a thorn in Nike‘s side, is to maintain the corporate culture and maintain profitability, too. In the global slowdown of 2009, Lululemon’s quarterly earnings declined for three quarters, but the third fiscal quarter, ended November 1, saw earnings roar back, as its after-tax profit margin hit 12.5%. Analysts are looking for earnings growth of 16% in 2010 and 34% in 2011.
“Many stocks that have broken out in recent weeks have done so in reaction to excellent earnings releases. But not LULU; earnings won’t be released until March 25. And that makes this stock’s strength even more impressive; it’s climbing for the best reason for all, because people in the know see great growth ahead. The last three months have seen a top at 33, a climax of selling at 26 a month ago, and then the breakout, on high volume, last Friday. While you can buy here, waiting for a pullback might be wiser.”
And Cabot Top Ten Report subscribers got that pullback a few days later, giving them a great entry point. Investors who bought in then have seen the stock trek steadily upward, hitting new highs this week. They’re up 32% in just three weeks!
LULU may be a bit extended to the upside after this monster run, but since the stock is not well known and the company is bringing customers what they want, it has great potential.
(If you want the absolute latest on what Mike thinks about Lululemon, watch his weekly Stock Market Analysis Video here.)