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Thu, Feb 22, 2001 EST
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An Irrational Mania for Retailers
By John Crudele   N.Y. Post
About the only thing in retailing not on sale these days are the stocks of the companies that are being forced to run all those sales.

Which leads to the question: Have investors again lost touch with reality - or just retailing?

Shares of big stores and small specialty retailers are bright spots in an otherwise dim market these days. The logic behind the buying is understandable: the Federal Reserve will cut interest rates, the White House will give a tax break and consumers will rush out and continue their profligate spending.

"We're talking about a recession, but the retailers' stocks are doing well. I don't get it," said one Wall Street source of mine.

I don't, either. In fact, the improvement in retailing stocks of late even has some Wall Street analysts - a group not normally known for their feather ruffling - questioning the sanity of investors.

We aren't talking the same sort of lunacy as happened last year with Internet stocks. But the exuberance for retailers - most of which will report lower earnings this week - is getting a little irrational.

"People are assuming there will be a very big consumer turnaround in the second half" of 2001, explains Eric Beder, the retailing analyst at the Wall Street firm of Ladenburg Thalman & Co. But he's being cautious and has a conservative "hold" rating on half of the companies he follows.

Despite the recent rise in retailing stocks, Beder still likes The Neiman Marcus Group, Kmart (the subject of a recent Taking Stock column), ShopKo Stores and Value Vision International.

He especially likes Value Vision, which "has been slaughtered." Its problem - like a lot of other retailers - is that it recently guided analysts' expectations lower. Beder thinks that company has a fair value of $39 a share, and it is selling at less than $15 a share right now.

While there may be some cheapies in retailing, most of the stocks could come back down to reality. Which are the most dangerous? J.C. Penney, Nordstrom, Liz Claiborne and Dollar General all have earnings reports coming out in the next couple of days, so they'd have to be at the top of the endangered list.

Wal-Mart and Home Depot both reported lower profits yesterday. Home Depot even warned analysts that the first half wasn't going great and that consumers don't seem to be helped yet by rate cuts.

Both Wal-Mart and Home Depot forewarned Wall Street enough to actually spin the bad news into a gain in their stock prices.

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