Business Is Booming for Some of These Stores


Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some retailers to your portfolio, the SPDR S&P Retail ETF (NYS: XRT) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously, gaining diversification, too.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The retail ETF's expense ratio -- its annual fee -- is a low 0.35%.

This ETF has performed rather well, significantly outperforming the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why retail?
Retail is a promising sector partly because it's sturdy. It can be somewhat cyclical, with many retailers suffering during our prolonged economic slump. But others prosper during such times, as many consumer goods purchases can't be put off. And right now is a promising time, as our economy is showing signs of recovery.

More than a handful of retail companies had strong performances over the past year. Outdoor recreation gear retailer Cabela's (NYS: CAB) surged 77%, for example. It had been posting strong growth but stumbled a bit in its most recent quarter, sending shares down sharply. Management remains confident, though, particularly in its plan to boost performance via new stores with updated formats.

O'Reilly Automotive (NAS: ORLY) gained 20%, operating close to 3,900 stores in 39 states, and planning to surpass 4,000 in the coming year. In its recently reported third quarter, the company posted record-high operating margin and a 20% boost in earnings per share. Its earnings are growing faster than revenue, though, which isn't sustainable.

Other companies didn't do as well last year but could see their fortunes change in the coming years. Supermarket chain SUPERVALU (NYS: SVU) plunged 63%, for example. Its revenue has been shrinking in recent years, and the company suspended its dividend a few months ago. Its cash has been declining while debt rises, so it's not a surprise that the company is open to being acquired. Of course, those who don't think the company is in deep trouble think it's now attractive.

Netflix (NAS: NFLX) sank by 23% over the past year. The company's more lucrative streaming service is growing, and it recently racked up its 30 millionth streaming customer, but some still see Netflix as broken, not offering sufficient programming and facing stiff competition from the likes of Hulu and (NAS: AMZN) . On the plus side, the company is expanding its international reach.

The big picture
Demand for retail goods isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Everyone knows Amazon is the big bad wolf in the retail world right now, but at its sky-high valuation, most investors are worried it's the company's share price that will get knocked down instead of those of its competitors. We'll tell you what's driving the company's growth, and how to know when to buy and sell Amazon, in our new premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.

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Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of and Netflix. The Motley Fool owns shares of, Netflix, and SUPERVALU. Motley Fool newsletter services recommend, Netflix, and SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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