Too early to call it a trend, but the retail shopping numbers over the Thanksgiving weekend that traditionally kicks off the holiday shopping season were encouraging to those of us projecting a decent 2% or so increase in retail sales this year.
The average U.S. shopper spent 6.4% more this year than last over the Thanksgiving weekend, according to the National Retail Federation. The average of the 212 million shoppers at stores and websites over the weekend spent $365. Online sales made up one-third of the total. U.S retail sales over the weekend came to an estimated $45 billion.
The National Retail Federation is projecting a 2.3% gain in retail sales to $447 billion this year during the holiday shopping period. That contrasts with a 0.4% gain in 2009 and a 3.9% drop in 2008.
That kind of holiday retail season would be a positive sign for the economy as a whole. Consumer spending makes up 70% of U.S. economic activity and strong holiday sales would be an indicator of improving consumer confidence.
A strong initial weekend doesn’t always turn into a strong holiday season. In 2008 the National Retail Federation saw an increase in sales on the Friday after Thanksgiving turn into a decline for the holiday retail season as a whole.
To make it simple. STD is the collateral damage of Euro troubles. But I do concern about its long-term prospect for different reasons as I posted in another tread earlier.
Seaturtlelady,
Let’s assume that STD earns all of its money in the Eurozone. This year’s projected earnings are roughly $1.25 per share, and next year’s projected earnings are roughly $1.50 per share. The euro is trading at $1.30. If the euro falls to parity with the dollar, that would put 2010 earnings at roughly $1 per share, and 2011 earnings at $1.15.
Thus the current P/E (multiple) is $9.65 / 1, and the forward P/E is 9.65 / 1.15, or 9.7 and 8.4, respectively. Is this a good multiple?
Now revise the calculation to say that only perhaps only 50% of STD’s profits are in euros. This puts 2010 earnings and 2011 earnings at $1.1 and $1.3 per share, respectively, for current and forward multiples of 8.7 and 7.4. Again, do you think that is a risky multiple for a bank like STD?
Only you can decide if that’s too risky for you. But it sounds good to me.
My hope is that I can show you that such calculations are easy and to encourage you to always “check the numbers” yourself if you’re going to be investing. If we’ve learned anything from the real estate bubble, I hope it’s that you can’t simply trust analysts’ numbers unless you’ve done your own ballpark calculations to see if they make sense. Sometimes “the market” gets things wrong (in both directions). This gives you the ability to profit, but only if you’re willing to do the calculations to see which direction the market has erred.
USDAportfolio…
I really REALLY enjoyed reading your post above but was quite lost when you asked me to…
Pick a number and modify the earnings estimates to calculate a “refined” target earning for 2010 and 2011. What multiple is it trading at?
Truth be known, there is no way that I could apply those numbers to figure out the “multiple”, since my knowledge base is extremely limited. I use Finviz.com to help me with RSI, target, etc….sooooo, maybe someone else can jump in to save me?! 🙂
I’m still grateful that you took the time to answer my question! Thanks a bunch! 🙂
Seaturtlelady,
Spanish banks have two major forces working against them right now: fear of a spreading banking crisis (through Greece, to Ireland, then to Portugal, and culminating in Spain), and increasing signs of growth in the USA. The former causes investors to shun European banks in particular, and the latter compels investors to sell euros (and euro-based assets) and to buy dollars.
Not surprisingly, Spanish banks are getting hit hard while this trading strategy is “on”.
To me, knowing what’s going on is half the battle. This story has already been written and rehearsed in the Spring with the Greek crisis. Even the order of the falling dominos. Nothing that’s happening is really surprising.
Keep in mind that STD is not a Spanish bank because it does all of its business in Spain, it’s a Spanish bank because it is headquartered in Spain. Re-read Jim’s rationale in his “original buy” column to see where STD makes its money.
Is there a reason to panic? Let’s put some numbers to it. How low do you think the euro can go relative to the dollar? Pick a number and modify the earnings estimates to calculate a “refined” target earning for 2010 and 2011. What multiple is it trading at? Still think there’s a problem?
How long do you think the euro-short / dollar-long trade will go on? If that trade unwinds, that will help the euro-based profits of STD. Even if the trade turns into a long-term trend of dollar appreciation relative to the euro, how much does STD’s growth (in Latin America, primarily) counteract lost profits in euros?
I’m genuinely curious to hear your response, or anybody else’s. What do the readers think? As for me, I just used the dollar strength to buy a half-position in STD.
Heyyy Jim…
Do you still feel pretty good about STD even though it has dropped recently??
Thanks too for getting ETRADE to pick up JUBAX! 🙂