Whether this month's slump continues throughout the remainder of this year and into 2010 remains to be seen. Many carmakers are expected to introduce new incentive programs in addition to rolling out new models. Plus, two of the best-selling cars over the past several years - the Toyota Camry and the Honda Accord - did not qualify for the Cash for Clunkers rebate. (Even my V6 Accord was too fuel efficient to qualify.)

Earnings Estimates for Dealers Are Mixed

The 2009 and 2010 Zacks Consensus Estimates for AutoNation (AN) and Penske Automotive Group (PAG) have been revised upward slightly over the past few weeks. These changes likely reflect the boost provided by the CARS program, however.

There has not been any change to forecasts for Asbury Automotive Group (ABG). The 2009 Zacks Consensus Estimate for Sonic Automotive (SAH) is falling, down 2 cents this month to 64 cents per share. (The 2010 Zacks Consensus Estimate is also lower.) One analyst recently cut his full-year profit forecast on Group 1 Automotive (GPI), though the revision did not affect the consensus forecast.

Revisions Are Favoring Used Car Dealers

Ironically, earnings estimate revisions are most bullish for used car dealers America's Car-Mart (CRMT) and CarMax (KMX).

All 4 covering brokerage analysts raised their fiscal 2010 profit forecasts on CRMT this month. The revisions pushed the Zacks Consensus Estimate 21 cents higher to $2.01 per share.

KMX reported fiscal second-quarter results yesterday. The company enjoyed an 8% increase in same store sales. Profits totaled 47 cents per share, a big improvement over last year's earnings of 6 cents per share, and far above the consensus estimate of 18 cents per share. In addition to seeing improved traffic patterns, the company benefited from higher used car valuations. KMX said that its used vehicle profit increased to $2,120 per unit from $1,870 per unit.

Keep An Eye On Used Car Inventories

Used car inventories are the other post-CARS wildcard. Used car prices had been on the rise this year as consumers found difficulty obtaining credit for new car loans or looked for cheaper alternatives. The Cash for Clunkers Program cut supply further by scrapping the trade-ins. Though some vehicles will end up back on dealer lots because they did not qualify for the rebate, many cars and trucks are now permanently off the road.

CarMax CEO Tom Folliard acknowledged on yesterday's conference call that used car supply is down, but he also stated that used car inventories are largely dependent on new car sales. If Cash for Clunkers truly did take sales away from the future then used car prices could stay elevated. This lack of supply could continue to drive up trade-in values, putting sustained pressure on new car margins, while providing used car dealers with further pricing power.

Sector Rank as of Sep 23
Sector	This Week's Zacks Rank	Last Week's Zacks Rank	FY09 Revisions Ratio	FY09 Estimates Revised Up	FY09 Estimates Revised Down
Consumer Staples	2.68	2.63	2.15	146	68
Conglomerates	2.69	2.73	1.22	11	9
Auto-Tires-Trucks	2.69	2.77	0.87	26	30
Retail-Wholesale	2.80	2.76	2.07	345	167
Computer and Technology	2.90	2.90	2.52	564	224
Medical	2.96	2.93	1.35	195	144
Construction	2.98	2.97	0.94	45	48
Consumer Discretionary	3.00	3.00	1.23	119	97
Basic Materials	3.00	2.98	1.43	130	91
Oils-Energy	3.01	3.00	0.77	180	235
Industrial Products	3.04	3.05	1.46	92	63
Utilities	3.05	3.02	0.75	46	61
Business Services	3.06	3.08	1.11	31	28
Finance	3.11	3.13	1.16	329	284
Aerospace	3.18	3.23	0.32	18	57
Transportation	3.23	3.23	0.83	87	105

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.

Zacks Investment Research

Source: FRED

On Tuesday the Census Bureau announced that U.S. retail and food services sales in August were 2.7% higher than in July on a seasonally adjusted basis. True, 2/3 of the additional $9 billion in spending was attributed to motor vehicles and parts, and September car sales could be much worse than August. Another 1/6 of the new spending came from gasoline stations, and the higher average gasoline prices in August are hardly cause for celebration. But even excluding autos and gasoline, core retail sales were up 0.6% in August. Here's the summary from Stephen Stanley of RBS:

after a string of contractions, these data suggest that consumer demand is, at a minimum, stabilizing. Core retail sales may even be starting to firm slightly (up in 2 of the past 3 months), but we will need to see another month or two of positive data to have confidence in that view.

Source: FRED

On Wednesday the Federal Reserve reported that its index of U.S. industrial production grew by 0.8% in August, adding to the 1% gain seen in July, and breaking the steady drop this indicator had been exhibiting since January 2008. Spencer of Angry Bear notes that the increase in industrial production over the last two months is typical for previous economic recoveries. If this does prove to be a typical recovery, given the sharpness of the downturn we would expect to see sharp growth from here.

Source: Angry Bear

These new readings for sales and production were enough to push the Aruoba-Diebold-Scotti Business Conditions Index back into positive territory for the first time since the recession began.

Aruoba-Diebold-Scotti Business Conditions Index.

What's not to like? My key worry about the U.S. economy remains the employment picture. The Conference Board includes initial claims for unemployment insurance and average weekly manufacturing hours in its index of leading economic indicators, the number of workers employed on nonfarm payrolls in its index of coincident economic indicators, and average duration of unemployment in its index of lagging economic indicators. Manufacturing hours have indeed rebounded off their lows.

Source: FRED

But for total private industry jobs, we've been stuck at 33.1 hours/week since March, unless you want to claim victory on the basis of the brief nadir of 33.0 hours/week touched in June.

Source: FRED

New claims for unemployment insurance did fall this spring. But the 4-week average reported Thursday is actually worse than the numbers we were seeing at the end of July.

Seasonally adjusted weekly new claims for unemployment insurance (black line) and 4-week average (blue line) so far this year.

Bill McBride believes that as long as the number of new claims remains above 400,000 per week, the total number of Americans working is going to continue to fall. With the latest 4-week average for new claims at 563,000, we've got a long way to go before the employment situation is actually improving.

Source: FRED

And even once the number of Americans working starts to grow, unless it grows faster than the number looking for work as a consequence of population growth, the unemployment rate will continue to climb.

Source: FRED

I see this as more than the conventional hand-wringing about a "jobless recovery." That phrase might suggest that we're just talking about a replay of the anemic recovery that followed the 2001 recession. In the first 6 months of 2002, nonfarm payrolls fell by 350,000, or 58,000 per month. In July and August of 2009, payrolls fell by 492,000. If the recession really ended in June, as some claim, this is a much more serious problem than we saw in 2002-2003.

And it is a more serious problem not just because of the ongoing human cost. It also undermines the prospects for continued improvement in the other indicators. As long as large numbers of people are still losing their jobs, that can set in motion a number of undesirable feedbacks such as increasing loan delinquencies that could bring about a replay of some of the concerns many of us had hoped were behind us. Federal Reserve Bank of San Francisco President Janet Yellen was right on target:

The financial system has improved but is not yet back to normal. It still holds hazards that could derail a fragile recovery....

And the likelihood of continuing losses by financial institutions will add new fuel to the credit crunch. In particular, small and medium-size banks could experience damaging losses on commercial real estate loans. Thus far, the largest losses have been on loans for construction and land development. Going forward, however, rising loan losses on other commercial real estate lending is likely because property values are falling, office vacancy rates are rising, and credit remains tight or nonexistent for those many property owners that will need to refinance mortgages over the next few years. Financial contagion from this sector is one of the most important threats to recovery.

So yes, it was a good week for some key economic indicators. But serious concerns remain.

One of the more embarrassing features of the New Deal was the Agricultural Adjustment Act of 1933, which paid farmers to slaughter livestock and plow up good crops, as if destroying useful goods could somehow make the nation wealthier. And yet here we are again, with the cash for clunkers program insisting that working vehicles must be junked to qualify for the subsidy. Economist Mom laments the tragedy and waste, as only an economist and mother could:

I don't think I can do it.... I mean, look at all the time and money (and love) I've poured into the (already) old beagle I adopted almost two years ago. It just seems very wasteful (and somehow "heartless", even with a car) to prematurely end a "life" that still could be valuable to someone-- doesn't it?

Bradford Plumer (via Free Exchange) has doubts about the environmental or energy benefits:

as we've noted before, the actual environmental benefits of this program may well prove modest. The fuel-economy requirements for the new car were, after all, fairly lax: You could in theory trade in a Hummer that got 14 mpg and get $3,500 toward a brand new 18 mpg SUV. That's still an upgrade (and, in fact, that trade would actually save more gas than upgrading a 30 mpg sedan to a 35 mpg vehicle), but it's a meager one. And if the upgrades are, in fact, all meager, they could end up being dwarfed by the energy required to manufacture new vehicles.

And yet, the chaos as dealers and consumers try to participate in the program is leading some to describe the program as

among the most successful stimulus packages to come out of Washington since the start of the recession. The boom in car sales will give a much-needed bump not just to auto makers and dealers but also local government coffers that collect taxes on car transactions.

I've been suggesting, as has Calculated Risk, that there was a significant potential without the cash for clunkers program to see a strong rebound in auto sales. Perhaps that was about to get started in July of 2009, though doubtless the program has also helped move sales that would have taken place later in the year into July ([1], [2]). But I'm not going to be persuaded that destroying productive physical capital is a way to improve the welfare of the average American.

There's not much we can do now for those 5 million piglets needlessly slaughtered in 1933. But I'm still hoping that glitches in the DOT computer system end up giving Economist Mom's beloved beagle an accidental reprieve.

Passenger car sales in China totaled 872,900 units, outpacing the U.S. by 13,053 units during June.

Passenger car sales in India were up 8% during the month, a significant improvement from a 4% decrease in May. Apart from Government incentives, new models such as Maruti Suzuki Ritz, Honda Jazz and Fiat Grande Punto pushed sales growth in the country.

The results will surely attract global automakers toward these countries to drive revenues in a gloomy auto industry.

During June, the U.S. auto industry posted a sales decline of 28%. Industry sales fell short of the targeted annual rate of 10 million units by 310,000 units. Ford (F) reported a 10.9% sales decline. Sales at General Motors (GMGMQ), the largest carmaker by volume, tumbled 33.6%. However, sales at Ford and General Motors surged 14% and 38%, respectively, in the first half of the year in China.

The European auto market is yet to revive. Both the leading automakers of Germany – BMW (BMW) and Daimler (DAI) – reported declines of 13% and 7%, respectively, in car sales during June. Nevertheless, the automakers’ sales were strong in China during the month.

We continue to recommend DAI and F as Holds.

The steel industry in the US is in distress, but it is on the road to recovery in Brazil. An increase in export price and new domestic projects are helping Brazilian steel industry. Moreover, government’s plan to cut labor costs in the country will in a way boost industrial productivity and growth.

Domestic steel prices are falling, which is likely to facilitate the Real Estate industry. Thus, Gafisa (GFA), one of the largest builders and incorporators of Brazil, will stand to benefit in the medium- to long-term.

In June, General Motors Brazil car sales reached 55.629 vehicles, the highest monthly sales volume in the company's 84-year history in Brazil. While General Motors in the US is mixed in bankruptcy proceedings, its Brazilian subsidiary is doing better than ever.

An increase in sales of automobiles in the country has supported steel industry to a greater degree. Cars and trucks sales in June 2009 escalated by 17.2% over June 2008 and it increased by 3% in the first six months of 2009 over December 2008. Reduction in Tax on Industrialized Products (IPI) from June has helped increase automobile sales in June by 21.5% over May. Seeing this, the government extended the tax break from October to December 2009.

However, the international economic slowdown can lead to a stronger-than-expected decrease in international steel demand. The difficult economic environment in the U.S. remains a threat for the steel industry on a whole and GGB in particular, due to its exposure to the U.S. market. Thus, we are reiterating our Sell rating on GGB but have a neutral view on SID encouraged by the impressive Casa de Pedra project and the Namisa deal.

Volume has been extraordinarily high today at approximately 9.6 million, against the average daily volume of about 3.8 million.

The nation's largest used car retailer posted a 17% decline in sales to $1.8 billion, which still bettered analysts' expectations.

Same-store used car sales slipped 17%, partially due to the sluggish performance of CarMax Auto Finance.

The consensus forecast for the year ending February 2010 moved up a penny over the past month to 25 cents per share, as 2 out of 11 analysts raised estimates. The most accurate estimate is even bullish at 27 cents per share.

Company Description

Autozone, Inc. is a specialty retailer and distributor of automotive replacement parts and accessories. The company operates more than 4,250 stores primarily in the Unites States and has a market cap of $8.41 billion.

With the economy stuck in a rut and consumers struggling under financial pressure, car sales have fallen sharply. This has been a boon for the retail auto-parts industry, which has thrived as owners upgrade existing models instead of buying new. This dynamic helped Autozone produce solid third-quarter results, reported on May 27.

Third-Quarter Results

Sales were up 9% from last year to $1.66 billion. Earnings came in at $173.7 million, up from $158.6 million last year, producing earnings of $3.13 per share.

CEO Speak

Autozone CEO Bill Rhodes underscored this trend, saying that, "The current economic environment, combined with the reduction in fuel prices compared to last year, has clearly been beneficial to our industry's performance."

Estimates Climb

Estimates have nudged higher since the good quarter, with the current-year estimate up 40 cents to $11.70. The next-year estimate is pegged at $13.13, a 12% growth projection.

The Chart

Shares of AZO have rebounded nicely over the last 7 months after dipping lower with the overall market in 2008. Take a look at the nice move below.

Zacks Investment Research

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.

Here is a synopsis of all five stocks:

Bull of the Day:

Abbott Laboratories (ABT) discovers, develops, manufactures and sells a diversified line of healthcare products. We expect almost 10% EPS growth over the next five years driven by strong sales of Humira and the company's rapidly growing vascular business.

Several new drug applications have recently been filed with the FDA, which should accelerate sales in the pharmaceutical business. We believe ABT possesses a low risk profile and will continue to trade at an industry premium.

Accordingly, we reiterate our Buy recommendation with a price target of $65.

Bear of the Day:

School Specialty's (SCHS) fiscal fourth quarter sales came in as expected, but the company's earnings easily beat our estimate thanks to strong cost-cutting efforts. The company did not provide specific guidance for fiscal year 2010, citing delays in the passage of state and school budgets.

SCHS is highly dependent on state and local governments for its revenues, and many of those governments are dealing with falling tax receipts and rising budget deficits. The federal government's stimulus package should help, but there is no guarantee that those funds find their way into education.

As such, School Specialty's revenue could come in below even our pessimistic forecasts. We would continue to avoid SCHS shares because the company's future results will not be due to the execution of its business model -- they will be determined by decisions made by state and local governments. Trying to game spending by state and local governments is not a prudent investment strategy.

Latest Posts on the Zacks Analyst Blog:

Still Leveraging Up

The prospect of very high inflation down the road is real. It is not a current danger given the huge amount of slack in the system. With unemployment at 9.4% and rising, there is simply no way that the wage side of a wage-price spiral can take hold. Thus for the time being, any inflation will simply serve as a method to reduce the real incomes of Americans.

The invisible hand of the market is going to force us to cut back on our consumption one way or the other. This means, among other things, that we will most likely never go back to an annual sales rate of 17 million for car sales. That is not good news over the long term for Ford (F) or even Toyota (TM). It might, however, be good news for AutoZone (AZO) since we will be patching up the old jalopy for much longer.

Dramatically lower consumption over time is not going to be good news for the vast majority of retailers or for the firms in the consumer discretionary sector. I'm not just talking about this year's revenues and earnings, but their revenues and earnings for the next decade (at least). On the corporate side, to reduce total debt companies are going to have to pay far less in dividends and not repurchase stock, and use retained earnings to increase equity relative to debt. State and Local governments will have to both raise taxes and cut services. This is going to seriously slow GDP growth, which will make it all the more difficult to reduce the level of debt relative to GDP.

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Since the beginning of April, we've been discussing one potentially favorable indicator in the form of new claims for unemployment insurance. In each of the last 6 recessions, the 4-week average of this series reached a peak less than 8 weeks before the economic recovery began. None of the readings over the last 8 weeks exceeded the value reached April 9, consistent with the hypothesis that we are past the peak in new claims for this cycle.

Black line: 4-week average of seasonally adjusted weekly initial claims for unemployment insurance, from Department of Labor via Webstract. Shaded areas correspond to recessions as judged by the National Bureau of Economic Research.

On the other hand, the most recent values for initial unemployment claims have not shown further improvements. Although the number released on Thursday was widely reported in the press as a drop in the number of new claims, it actually resulted in a slight increase in the 4-week average, putting the latter pretty much back where it was 4 weeks ago. If we were really beginning a recovery similar to that experienced in previous episodes, we should be seeing sharper drops in this number at this point.

Detailed behavior of seasonally adjusted weekly new claims for unemployment insurance (black line) and 4-week average (blue line) associated with historical peaks and most recent episode. Vertical lines in first five episodes denote the first week of the first month following the business cycle trough as designated by the NBER.

And if an economic recovery had begun at this point, we should be seeing confirmation in a number of other indicators. The downturn in business fixed investment gained momentum late in this cycle, leading me to expect the recovery to begin with growth in personal consumption and housing.

Average cumulative change in 100 times the natural log of real GDP or its respective component beginning from the business cycle peak for the 10 recessions between 1947 and 2001. Horizontal axis denotes quarters after the peak.

One indicator I'm watching in particular is new car sales, since current sales are unsustainably low given scrappage of old vehicles. But I see little sunshine in the May auto sales numbers. Total light vehicles sold in the U.S. had been down 34% between April 2008 and April 2009, and were down that same 34% between May 2008 and May 2009.

Light vehicles sold in the United States. Data source: Wardsauto.com

We did now get two consecutive monthly increases in disposable personal income, and that's certainly good news. But it's interesting and important that real personal consumption expenditures actually fell across those months, leaving some doubt about whether PCE growth will make a positive contribution to the 2009:Q2 GDP numbers.

Source: Calculated Risk.

Consumer sentiment has lifted, but has not apparently brought spending up with it.

Reuters/Michigan index of consumer sentiment. Data source: FRED and MarketWatch.

The reason for that, I believe, is that the recent consumption slowdown is not an "animal spirits" kind of move, but instead is at least in part a response to a previous profound imbalance in the ratio of household debt to GDP. Capital markets were seriously malfunctioning over 2004-2006, with many loans made that we can see today were in the interests of neither borrowers nor lenders. Deleveraging is going to be an unavoidable part of the correction process, no matter how consumers feel.

Household debt as a fraction of GDP. Data source: Federal Reserve Board Flow of Funds, Table L2.

The drop in oil prices since last summer was certainly helpful for that goal of strengthening household finances. But that also makes the significant move in oil prices back up since December a troubling development.

National average U.S. gasoline retail price. Source: NewJerseyGasPrices.com.

The 16% increase in gasoline prices between December and February resulted in an additional $37 billion spending by consumers at an annual rate on gasoline and fuel oil, increasing the share of energy purchases in consumer budgets from 4.85% in December to 5.17% in February. The additional 40% increase we've seen in the retail price of gasoline since February has likely brought that expenditure share back up above 6%.

Energy expenditures as a fraction of consumer spending. Calculated as 100 times nominal monthly consumption expenditures on energy goods and services divided by total personal consumption expenditures. Data source: BEA Table 2.3.5U, “Personal Consumption Expenditures by Major Type of Product and Expenditure,” obtained from Econstats. Dashed line is drawn at 6.0%.

A robust recovery? How and where?

Technorati Tags: macroeconomics, autos, auto sales, economics, recession

For an explanation of the contrarian stance that makes Schaeffer's so unique, check out a recent version of Trading Tools.

According to Zacks, Daimler was the focus of an outpouring of optimism in the options pits on Wednesday. The security saw roughly 62,500 calls cross the tape - 18.5 times its average single-day volume of fewer than 3,400 bullish bets.

However, calls aren't really near-term options traders' cup of tea; the equity's Schaeffer's put/call open interest ratio (SOIR) currently stands at 1.51, indicating that puts outnumber their bullish rivals among options slated to expire within 3 months. Furthermore, compared to similar readings taken during the past year, Daimler's SOIR ranks in the 94th percentile. In other words, short-term options speculators have actually been more skeptically skewed toward DAI only 6% of the time during the past 12 months.

So, why are options players suddenly revving their engines toward the bullpen?

One potential catalyst could've been an optimistic analyst note. A major brokerage upgraded Daimler to "buy" from "neutral" last week, predicting the shares could catch up with their sector peers soon, as "bad" news has already been discounted and market expectations remain low. As a result, shares of DAI skyrocketed 7.5% higher Wednesday, making them the sharpest gainers among German large-cap stocks.

Technically speaking, the past couple of years have been a bumpy ride for the auto industry, with DAI being no exception. The stock has surrendered about 70% since flirting with the 110 level in late 2007, but eventually found a foothold in the 25 neighborhood, which has acted as support since October 2008. On the bright side, the equity recently jumped a potentially significant technical hurdle, closing last week atop its 10-week and 20-week moving averages for the first time since November 2007. However, shares of DAI could face an additional layer of resistance in the 35-to-40 neighborhood, which hasn't been breached on a weekly closing basis in more than 6 months.

The stock currently harbors only 1 "buy" or better rating, Zacks reports, compared to 5 "hold" or worse ratings.

Nevertheless, this widespread bearish bias among the brokerage bunch could actually be a boon to the stock going forward. Should German car sales extend their recent run higher - the country's auto purchases were bolstered 40% on the year in March - or should the shares of DAI power past resistance, skeptics on the Street could get spooked. An unwinding of pessimism in the options pits, or a fresh wave of upgrades and/or price-target boosts, could place additional buying pressure on the motorcar mogul.

Zacks Investment Research

Reports today indicate that Chinese new car sales are up 25% versus last year, to 827,000 cars in the month of February. This is up 12% from January.

Right now, China is the largest new car market in the world. Part of this is due to the car becoming a more affordable necessity there. Part may also be due to a tax cut by the Chinese Government targeted at small, fuel efficient vehicles.

Used car sales continue to hold up in the U.S., as consumers are shying away from new cars. Consumers are fixing up old cars rather than trading in for a new car. The relative performance of stocks that sell used cars and auto parts has been fantastic over the past six months, as can be seen below:

                                                                               

Company	Ticker	Relative Performance
Advanced Auto	AAP	62%
Autozone	AZO	82%
O'Reilly	ORLY	87%
AutoNation	AN	62%
Genuine Parts	GPC	30%
Penske Auto	PAG	3%
Carmax	KMX	36%

Relative performance compared to Dow Jones US Auto/Auto Parts Index

In the midst of an ongoing recession, Retail-Wholesale is one of the top-ranked sectors. Though this sounds paradoxical, there are 3 reasons that justify this.

The first has to do with timing. Many retailers operate on a February-January calendar year, which means they report earnings later than most companies.

To the extent that analysts revise estimates higher in response to earnings reports, those late reporters receive a better Zacks Rank. The Zacks Rank considers changes made to earnings estimates over both the last 60-90 days and over the last 30 days.

Secondly, as Rob Plaza discussed yesterday, expectations were overly pessimistic, making it easy for some companies within the retail sector to clear the hurdle by a seemingly wide margin.

Finally, there were a few companies in the sector with good earnings reports.

Economy Helping Auto Part Sales

AutoZone (AZO) is a good example. Yesterday, shares of the auto parts retailer soared after the company reported bullish results.

Fiscal second-quarter earnings totaled $2.03, 18 cents above expectations. Net sales reached $1.4 billion, aided by a 6% jump in same-store sales.

The company is benefiting from the decline in car sales. Consumers are keeping their cars longer and, as a result, are spending on maintenance. (Afterall, it's hard to get a job if you can't make it to the interview.)

The stock had soared by more than 50% from its November lows prior to the earnings report, so there was not much room for error. Yet, AZO performed and was rewarded with a new 52-week high yesterday, making it a Zacks Rank top performer.

AutoZone's positive surprised followed good earnings reports from 2 of its competitors, Advance Auto Parts (AAP) and O'Reilly Automotive, Inc. (ORLY). AZO, AAP and ORLY are Zacks #2 Rank ("buy") stocks classified in Retail/Wholesale-Auto Parts.

Video Games Still Selling

Another retailer that has thrived in the face of the recession is GameStop Corporation (GME).

The company recently revised its fourth-quarter guidance to the high-end of the previous range. The world's largest video game reseller expects earnings to have totaled between $1.33 and $1.34 per share. Same-store sale are estimated to have risen by 9.6%.

This year, GME thinks it can achieve comparable same-store sales growth between 4% and 6%, which would be impressive given the maturity of the current gaming console systems.

Though the company did not provide an EPS projection, half of the 16 covering brokerage analysts raised their fiscal 2010 forecasts in response. The consensus earnings estimate now calls for fiscal 2010 profits to total $2.83 per share, which would be an 18% increase over fiscal 2009.

GameStop is scheduled to report in mid-March.

GME is a Zacks #2 Rank stock classified in Retail-Consumer Electronics.

Restaurants Not As Bad As Feared

On the other hand, some companies within the retail sector simply have fared better than analysts feared. This was the case with Cracker Barrel Old Country Store, Inc. (CBRL).

The chain earned 81 cents during its fiscal second-quarter, 6 cents more than brokerage analysts had projected. Though that sounds good, revenues did decline. Same-store restaurant sales were 1.5% lower and same-store retail sales contracted 7%.

CBRL's guidance, however, was good, all things considered. The company reiterated its fiscal 2009 guidance for earnings of $2.65-$3.00 per share.

This was important because analysts had been lowering their full-year projections prior to the release of earnings. During the past few weeks, analysts have reversed course, and the consensus earnings estimate has risen by 12 cents to $2.68 per share.

Brokerage analysts have also recently raised their full-year profit forecasts on Papa John's International, Inc. (PZZA) and Texas Roadhouse, Inc. (TXRH).

CBRL is Zacks #1 Rank ("strong buy") stock, whereas PZZA and TXRH are Zacks #2 Rank stocks. All 3 are classified in Retail-Restaurants.

The Zacks Rank is a quantitative short-term indicator designed to determine a stock's relative performance over a period of 1 to 3 months.

Zacks Premium and Zacks Elite subscribers can view the Zacks Industry Rank List at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Sector Rank as of Mar 3
Sector	This Week's Zacks Rank	Last Week's Zacks Rank	FY09 Revisions Ratio	FY09 Estimates Revised Up	FY09 Estimates Revised Down
Medical	2.60	2.61	0.81	593	730
Retail-Wholesale	2.88	2.94	0.50	296	595
Computer and Technology	2.88	2.89	0.34	513	1498
Aerospace	2.98	2.98	0.30	30	101
Consumer Discretionary	2.98	3.00	0.27	158	587
Utilities	2.99	2.97	0.29	90	314
Business Services	3.01	3.04	0.32	77	243
Consumer Staples	3.01	3.00	0.32	121	380
Construction	3.16	3.04	0.28	58	210
Oils-Energy	3.18	3.21	0.26	283	1070
Transportation	3.21	3.20	0.15	47	311
Industrial Products	3.26	3.27	0.17	66	389
Auto-Tires-Trucks	3.26	3.24	0.12	16	137
Finance	3.28	3.28	0.17	282	1618
Basic Materials	3.28	3.27	0.32	114	360
Conglomerates	3.30	3.18	0.16	8	50

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.

Zacks Investment Research

For the future, we expect this correlation to increase even more, as emerging economies will keep on leading the growth and developed economies, particularly the U.S. will rely a lot on government investments in infrastructure. It seems that the scenario is not bad for basic material producers -- it is undeniable that economic growth in the near future will be very commodity-intensive. However, the basic question remains: Will there be any economic growth?

We believe it is too early to answer this question. We remain quite skeptical on commodity producers for now; nevertheless there are other opportunities in companies that are focused in local markets in Latin America that are quite interesting.

We believe emerging economies will outperform more developed countries in Europe, the U.S. and Japan. In fact, most emerging countries have high levels of reserves, a more solid banking system and a growing consumption. In one particular case in Latin America, it is interesting to understand the situation of Brazil, the biggest economy in the region. Brazil has over US$200 billion in international reserves, a positive trade balance, a solid fiscal position, a healthy banking system and very high interest rates that will be reduced in the short-term to keep the economy growing.

Brazil still has the highest real interest rate in the world. Domestic rates are now at 12.75% (after the Central Bank slashed rates by 100 bps in January 2009) and 2009 inflation is expected to be 4.5%. The lower volatility of the Brazilian real will enable the Brazilian Central Bank to go on reducing interest rates in the very short-term. We expect Brazilian rates to reach 10% per year by the end of 2009.

Since the local banking system remains solid, lower rates are not transformed into a liquidity trap. Amazingly, the Brazilian economy has even showed some signs of recovery in January and February 2009.

After 5 months of consecutive declines, in January Brazil produced a total of 186,100 vehicles, almost 100% more than in December 2008. Total vehicle sales in January reached 194,500 vehicles, 1.5% more than in December 2008. Some days ago, it was announced that car sales in Brazil increase 15.56% in the first half of February 2009 if compared to the first half of January 2009, reaching a total of 109.258 units (just cars, not including buses or trucks). If we compare to the same period 2008 it also increased by 7.4%. <p. It was also announced some days ago that in January 2009, total subscribers in the Brazilian wireless market grew by 0.86% from December 2008. Despite the crisis, January 2009 was the second best month in terms of subscribers' growth in 10 years, in absolute terms!

It seems that companies focused in local Latin American markets will go through the crisis without much pain; thus, there are some good opportunities out there.

OPPORTUNITIES

In such a business environment we would recommend some Brazilian domestic focused companies like the telecom companies Vivo (VIV) and Oi Participacoes (TNE), consumption products producer like AmBev (ABV), fuel retailers like Grupo Ultra (UGP), high-dividend utilities like Telesp (TSP) and clear bargains like Telemig (TMB).

WEAKNESSES

On the other side, we would avoid some companies that are still facing seemingly endless problems with currency derivatives like Aracruz Celulose SA (ARA) and Votorantim Celulose e Papel SA (VCP), highly levergaed raw material producers exposed to the U.S. market like Gerdau (GGB) and Cemex SAB de CV (CX). Zacks Investment Research