Since we have been saying for many months that corporate earnings would continue to surprise to the up side, we see no reason to get cautious now.
We believe the the odds are very good that analysts' earnings for many important retail stocks will prove to be too low for the holiday season of 2009-2010. Notice that we say the Christmas selling season of 2009-2010. Indeed, research shows that the old fashion Thanksgiving to Christmas Eve selling season has morphed into a much longer season. Our best guess is that the Christmas season now begins well before Thanksgiving and ends after the first of the year. We know in our own office of many extended-family Christmas celebrations that occur after the first of the year.
We also believe in the maxim, "Christmas always comes." Almost every year we hear retailers and analysts fretting that this is the year that people will stay at home and give up the gift giving habit. Without a doubt this has been a very tough year. Consumers will not be spending money foolishly, however, Christmas is such a deeply held part of our culture that we find it difficult to believe that people will give up the joy of giving. The joy of giving, after all, is one of the things that makes Christmas such a wonderful time of the year.
One retail stock that we like is Nike (NKE). NKE's Dividend Valuation Chart is shown above. The model is indicating that NKE's current share price is at a discount to its 2010 valuation, which is based on its normal relationship with its dividend growth and changes in interest rates. Additionally, from a contrarian point of view, NKE is always the subject of lots of nay saying about their ability to sell "pricey" athletic shoes and apparel in a tough economy. We believe for many young people the "one" gift they want, to the exclusion of others, is something with the swoosh on it.
In short, we think NKE's earnings will surprise to the up side.
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