Hedge Funds are Selling these Retailers with Encouraging Inventory Trends

Hedge Funds are Selling these Retailers with Encouraging Inventory Trends

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Its that time of the year, when retailers attempt to clean their inventory and try to outperform on top line growth. Looking for contrarian plays on retailers this quarter? We ran a list you might find interesting

We screened for soft-line retail stocks seeing higher growth in revenue than growth in inventory year-over-year, as well as inventory becoming a smaller portion of current assets. These trends may indicate strengthening sales trends.

For a contrarian edge we further screened for net institutional sales in the current quarter. Institutions, such as hedge funds, typically have access to more market data than the average investor, so their net trading activity can serve as signals for the rest of us. In this case, the “smart money” seems significantly bearish.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the four stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

We were left with 2 stocks detailed below. Do you think institutional investors are correct to give up on these possible retail winners?

 

1. Cintas Corporation (CTAS, Earnings, Analysts, Financials): Provides corporate identity uniforms and related business services in North America and Latin America, Europe, and Asia. Market cap at $4.95B, most recent closing price at $39.67. Net institutional sales in the current quarter at -6.8M shares, which represents about 6.49% of the company’s float of 104.75M shares. Revenue grew by 3.36% during the most recent quarter ($1,051.33M vs. $1,017.18M y/y). Inventory grew by -13.74% during the same time period ($241.7M vs. $280.21M y/y). Inventory, as a percentage of current assets, decreased from 18.9% to 15.86% during the most recent quarter (comparing 3 months ending 2012-08-31 to 3 months ending 2011-08-31).

 

2. Macy’s, Inc. (M, Earnings, Analysts, Financials): Operates department stores and Internet Web sites in the United States. Market cap at $16.17B, most recent closing price at $40.18. Net institutional sales in the current quarter at -32.0M shares, which represents about 8.12% of the company’s float of 394.16M shares. Revenue grew by 3.79% during the most recent quarter ($6,075M vs. $5,853M y/y). Inventory grew by 0.7% during the same time period ($7,208M vs. $7,158M y/y). Inventory, as a percentage of current assets, decreased from 79.97% to 78.66% during the most recent quarter (comparing 13 weeks ending 2012-10-27 to 13 weeks ending 2011-10-29).

 

 

 

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