Why I am Super Bullish on Retail
I love analyzing retail companies-- always have. Everyone has their favorite areas of investing and this happens to be mine. That doesn't mean I do not look elsewhere-- after all, I do consider myself a generalist. I just happen to have a sweet spot for great retail concepts.
I bought a big position in ARO a few months ago. It has tanked some 30%. I was clearly early. I still think that over the long-term that ARO is worth more than my cost basis and is setup for a huge run. Most retailers I am looking at look cheap right now. My other favorite is Citi Trends (CTRN)-- I just recently bought a position. (For my thoughts on both companies, checkout my CAPS pitches).
One of the reasons I like retail right now is that I think margins are at a cyclical trough due to the high price of cotton that has hammered gross margins. However, this is a temporary issue. Cotton is a constant cost commodity-- prices can rise in the short-term based on yields, weather, etc. but in the long-term, if prices are unusually high, farmers simply make more cotton and we get a reversion to the mean. The following SA article does a good job of explaining why cotton should come back down:
I also read a great article in the recent ValueInvesting Insight in which one of the managers said that cotton prices were a huge bubble set to burst. I tend to agree- and that's one of the reasons why I own shares of CTRN and ARO.