December 11, 2007

2008 Retail Stocks

From the Fool:

Lumber Liquidators

Knock on wood? That's what the market did when Lumber Liquidators went public last month. The hardwood-flooring specialist was hoping to go public at $12 to $14 a pop, had to settle for $11, and is now trading in the single digits.

"Of course," you say. The housing market is in a funk. There's no need for flooring if there's no appetite for the house as a whole. But that's not a fair assessment. In an Associated Press article that followed the disappointing IPO, the company's CEO pointed out that 80% of the company's customers are existing homeowners looking to spruce up their present digs. In fact, even though demand for hardwood flooring in general has been waning, Lumber Liquidators has rattled off 23 consecutive quarters of same-store-sales gains. Comps actually clocked in 8.6% higher through the first nine months of 2007.

Now, I'm not naive. A lot of homeowners need to borrow money for a hardwood makeover, even at Lumber Liquidators' rock-bottom prices, and the subprime fiasco is making creditors very particular about their lending habits. Then again, the Federal Reserve's rate cuts may very well spur cash-out refinancing to fuel home-improvement projects. Until comps head lower, I'd argue that Lumber Liquidators is immune to the housing market's weakness.


I singled out Cabela's last month as a door-buster stock. The outdoor-gear superstore concept -- a literal feast for the senses with its theme park-esque stores that feature large fish tanks and wildlife replica displays -- needs the market to breathe the fresh air outside.

Sure, profits took a small hit this past quarter, but the shares are now trading at just 10 times next year's analyst profit target of $1.62 per share. You don't need to look through the scope of one of its hunting rifles to see that cheap is within the crosshairs at Cabela's.

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