WAITING FOR THE FED'S RATE DECISION TUESDAY-WHAT TO BUY AND SELL IN THE RETAIL SECTOR-A FRESH LOOK AT WALGREENS

12/9/2007 2pm CT Sunday

By Dave Harris

Although most of Wall Street anticipates a cut this Tuesday from the Federal Reserve, the debate is by how much. Will it be 25 or 50 basis points? In recent weeks, whenever a Fed official hinted that a cut is likely, stocks generally rallied. To the central bank, inflation is no longer as much a concern as economic stability. Still, I believe last week's employment report, which indicated rising inflation pressure, makes it more likely the Fed is going to cut by 25 basis points. Hourly earnings were up by .5 percent and above views. But overall, it was good news on November job growth. Unemployment was even at 4.7 percent and 94,000 payrolls were added. Consumer strength is the key here. If the employment numbers were lower, than I would expect a 50 basis point cut on Tuesday. In either case, I'm expecting the market to react positively no matter what the Fed decides, as long as they cut.

Despite the market's recent ups and downs, the three main indexes had gains for the week. The Dow Jones Industrials rose nearly 2 percent at 13,625.58. The NASDAQ gained 1.7 percent at 2,706.16. The broad S&P 500 rose nearly 1.6 percent at 1,504.66.

This Thursday, data on November retail sales will come out. Last week, individual retailers proved that sales were mixed. Target (TGT) had some disappointing apparel sales and warned that December will need to show improvement. I think they're going to surprise us. Look at the latest November job growth. Target should be bought here. The stock closed down 6 cents at 55.51. I think its way too cheap and going over 60.

J.C. Penney (JCP) said same-store sales rose 2.6 percent, but analysts expected better. The Gap (GPS) had flat results. But the stock has been going up because they beat the analyst’s dismal projections. If you already own the stock, I believe now is a great time to sell it. The Gap was 21.57 per share on Friday.

On the plus side, Macy's (M) beat expectations with sales well over 13 percent. Wal-Mart (WMT) also beat the street, with sales up nearly 2 percent. The company also forecast a solid December, with sales in the states to be up 2-3 percent. Wal-Mart is a buy here at 49.02.

Drug store Walgreens (WAG) took a major beating since their disappointing earnings results a few months back. This stock was typically trading well into the 40's, but has since been in the $36-$38 dollar range. Early last week, the company said sales rose 4.4 percent last month on the strength of electronic, pharmaceutical and food sales. The chain did experience some weakness due to a mild flu season and cheaper pricing on digital prints. But I think the stock has hit bottom and will surprise to the upside. Walgreens will once again benefit from its solid management and demonstrate real profitability in the coming quarters. Now is the time to pick up the stock here at $37 per share.

The coming week isn't all about the Fed's announcement. The international trade report is due from the Commerce Department Wednesday. Thursday, it's retail sales, initial jobless claims and a reading on wholesale inflation (the PPI). Then Friday, it's another inflationary indicator, this time from the consumer side (the CPI). All of which have the potential to move the market one way or another.