Tuesday, May 24, 2011

A Shorts List of Retailers

I rarely write about shorts. As most of you have known, shorting a stock theoretically involves unlimited risks/losses. Therefore, before you even consider using this as a reference, you must have enough trading experiences that will allow you to reverse/mitigate risks should things do not go the way as planned.

The make-up of this list is based on the following assumptions:
1. Retailers are facing increased cost pressure and difficulty to pass on to consumers
2. Gasoline prices stay high into the summer and deter shopping traffic.
3. Risk aversion heightens going into summer.
4. The target price is primarily calculated using the lowest P/E among peers (that I consider as relevant) in the category. E.g. shoes (TBL is the one with the lowest p/e)=15.58. Some adjustments (adding premium) have been made for growth and luxury stocks like LULU, SKS, ANF. As this is based on a standard, methodical calculation, further adjustments should be made based on your research of these companies. For example, there may be substantial risks shorting stocks that may be taken over. Rumors had that ANF may be taken over last November.

If you have doubts about the above assumptions, then you probably should stop here.
Click on the diagram to see a larger view:

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.

Disclosure: The blog author does not have any of the above position in her personal account as of May 23, 2011

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