Tickers in this Article: WMT, M, BBY, JWN, AMZN
This is the time of year that retailers anxiously wait for. Beginning with Black Friday, which marks when retailers' profits move out of the red and into the black, the following several weeks leading up to the holidays are when retailers rack up the bulk of their sales and profits. While it may be tempting to jump into retailing stocks in anticipation of higher retailing profits driving up stock prices, investors are better served watching from the sidelines.

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No Secrets
Investing in retailers during the holidays is no more than an attempt at timing a fad. It's no secret that consumers start shopping more after Thanksgiving and Mr. Market is no fool. Mr. Market is an anticipatory creature and knows full well what happens to retailers' sales after Thanksgiving. In all likelihood, share prices have already been bid up in anticipation. The only opportunity investors may have at this point is if any retailers deliver positive earnings that significantly surprise people, as long as the valuation is right. Best Buy (NYSE:BBY) may be the one retailing opportunity for value seeking investors, as current shares have remained depressed for some time. Opening at $26 on November 25th, BBY shares yield 2.4% and trade for less than nine times earnings. Long term, the market is concerned that Best Buy's big box stores are too big given the fact that electronics are becoming smaller, thinner and lighter. But ever since rival Circuit City went out of business, BBY is the only game in town for all things electronic. And the company is working towards reducing larger stores in favor of smaller mall-based locations.

Lofty Expectations
But as shoppers flood stores this month and next, most retailers will be cutting prices greater than ever to capture a portion of shopping budgets. High traffic stores like Macy's (NYSE:M) and Wal-Mart (NYSE:WMT) are attractive to shoppers for their ultra-low prices, which means the possibility of lower margins. Even though online shopping continues to increase each year, shares in the country's largest online retailer, Amazon (Nasdaq:AMZN), continue to decline because the valuation is pricing in lofty expectations. Even at $189 a share, investors are valuing Amazon at 100 times earnings. (For more on investing in retail, read Analyzing Retail Stocks.)

The Bottom Line
Retailing is an inherently tough business; margins are tight, inventory risk is high and competition is stiff. In order to compete, a retailer's only advantage is having lower prices than the competition. Higher-end names like Nordstrom (NYSE:JWN) and Neiman Marcus are in much better shape because they cater to shoppers who are generally insensitive to prices. Overall, retailing is a tough business to invest in, and a few strong weeks at the end of the year don't make much of a difference.

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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

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