On the merits of a surprisingly strong performance since mid-May, the retail sector just inched into positive territory for the year.

Investment salvation, however, remains a long way off.

Coach (COH) is still the year’s biggest dog of the S&P 500, down about 39%. Whole Foods (WFM), Bed Bath & Beyond (BBBY) and Best Buy (BBY) are each down over 20%.

Analysts are blaming the sector’s poor performance on the polar vortex from earlier this year.

[ad#Google Adsense 336×280-IA]Some are even predicting a big rebound.

Everyone loves a turnaround play, right?

Well, before you invest alongside the Ralph Laurens and Calvin Kleins of the world, have a look at this chart.

A word of caution, though…

If you’re in the retail business, this chart will likely ruin your day.

Last week’s U.S. jobs report was better than expected.

The U.S. economy added 288,000 jobs in June, according to the Bureau of Labor Statistics.

Even better, the unemployment rate fell to 6.1%, the lowest level since September 2008.

Americans are presently enjoying the best five-month stretch of job creation since early 2006.

Spells of unemployment are getting shorter, too.

Back in late 2009, the average unemployment stint was 25 weeks. Today, it’s only 12 weeks.

All of this good news has helped push the Dow past 17,000 for the first time in history.

Yet one chart in the jobs report is downright scary, and doesn’t bode well for any sustained rally among retailers.

As it turns out, wage growth remains dreadfully muted. In fact, the labor force is earning basically the same amount it was in the aftermath of the Financial Crisis (after adjusting for inflation).

So how can the retail sector expand when consumers’ wallets aren’t expanding?

As a whole, it can’t.

That being said, it’s never prudent to throw the baby out with the bath water.

The way to invest in the retail sector is to identify the outliers. That is, the companies distinguishing themselves with innovative products.

One such company is Gentherm Incorporated (THRM), which presently trades for $45 per share.

Gentherm manufactures climate-controlled, heated seats and steering wheels for the automotive market.

Business is booming, with profits up over 900% in the latest quarter. Since share prices always follow earnings (no exceptions), look for Gentherm to keep on truckin’ above the $50 level, and beyond.

Even though this company is part of the beleaguered retail sector, its red-hot growth is enough to warrant a “Buy” rating.

Onward and Upward,

Robert Williams


Source: Wall Street Daily