Sell Macy's, Buy Gold

Written By Briton Ryle

Posted May 16, 2016

Sales at America’s biggest retail stores are an unmitigated disaster. In the first quarter, same-store sales (SSS) at Macy’s fell -5.6% from last year. Analysts were expecting sales to fall -3.4%. At Kohl’s, same-store sales fell -4%. Analysts were actually expecting a slight gain of +0.4. It was the same at Nordstrom and Dillard’s, where same-store sales fell -1.7% and -5%, respectively.  

The simple fact is that online retail sales are killing the brick-and-mortar retailers. Did you see Amazon’s earnings? Total revenue for the first quarter was up 28% over the same time last year. 28%. Product sales were up 20%. And that means one thing: People are buying more stuff from Amazon and less from the Macy’s and Targets of the world. 

I’m sure some people will try to tell you that the terrible numbers from brick-and-mortar retailers mean the American consumer is struggling. They’ll say it’s because the economic recovery has been weak and new jobs don’t pay well enough to support the American Dream…

And while it’s true that the weak economy isn’t doing us any favors, it’s way too simple to just say that Americans suddenly can’t afford their way of life. Headline retail sales for April were up 1.3%, which is the biggest gain in a couple years. 

What’s Going On?

You have to be careful where you invest your money these days. We are not in a situation where a rising tide lifts all boats. There are very clear winners and losers out there. Brick-and-mortar retailers are among the losers. You can’t own these stocks anymore. They are going to have to downsize to cut costs. They will be laying people off and closing stores. 

Of course, there will be a time when retail stocks are washed out and offer some value. But that time is not now. They are still staring into the abyss, and things have a tendency to get worse before they get better.

That might be bad news for some of the real estate investment trusts (REITs) that own and operate malls — companies like Simon Property Group (NYSE: SPG) and General Growth Properties (NYSE: GGP). 

REITs own real estate and make their money by leasing space to tenants. When these tenants are retailers and retailers are closing locations, well, it seems pretty obvious that these REITs might suffer a little. 

Of course, that doesn’t mean you should throw out all REITs. There are some fantastic REITs out there, especially in the technology space. One of the best-performing stocks in my Wealth Advisory portfolio is a REIT that pays a 3% dividend. And I recently added another one that pays an awesome 10% dividend. That one is up 40% in just a couple months and is headed much higher. The company just beat first-quarter earnings expectations and raised its guidance for the rest of the year. 

You can also look to restaurant stocks. Sales at restaurants and bars were up 5%. And last year, sales at restaurants eclipsed sales at grocery stores for the first time ever.

Yeah, I’ve got a great restaurant chain in the Wealth Advisory portfolio, too. It’s just about a tenth of the way into its expansion plan — it’s opened around 160 stores and will have around 1,500 when it’s done. The company has executed flawlessly to this point, and there is a ton of upside for this stock. 

Maybe you get sick of hearing me talk about my Wealth Advisory income and dividend newsletter. Sorry about that. But why don’t you give it a try? It’s cheap, and there’s a money-back guarantee if you don’t like it.

The May issue of The Wealth Advisory comes out next week, and I’m featuring an emerging company that is on its way to greatness. It’s only been public for less than a year, and it has beaten earnings estimates every quarter. This one is a gem: I’m forecasting a 45% gain for the shares over the next year.

Of Course, We Have to Talk About the Fed…

So far this year, the Fed has continued to delay another quarter-point rate hike. But the Fed has also continued to point out that the U.S. is nearing full employment. Why does the Fed continue to talk about full employment? 

The answer has to do with why gold has been rallying…

People like to say that gold is protection in volatile markets. They also like to say it is a hedge against a weakening dollar. But the truth is that gold is a hedge against inflation. 

If you ask me, gold is rallying on inflation expectations. And it’s because that’s the signal that Yellen is sending with her “full employment” statements. She is saying that full employment will bring inflation sometime soon. 

Now, we’re not talking about runaway hyperinflation. Most likely something a little hotter than the Fed’s 2% target. 

Did you know it’s been 20 years since the U.S. had core inflation over 3%? That’s a pretty remarkable stat…

Inflation has been low for so long that it’s almost a joke when someone says that it’s going to rise. Almost.

It’s obvious that the Fed doesn’t want to hike rates again while the U.S. economy struggles. But it’s also obvious that the Fed is watching employment and inflation closely. And savvy investors have been buying gold all year. 

Add it up: odds are good that inflation picks up and gold makes a run at $1,500 by the end of the year. 

Until next time,

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.

 

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