Thanksgiving feasts are over and the shopping begins. The retail sector will be the talk all weekend as investor and stores hope for better numbers during the holiday season. The season can account for as much as one-third of the annual revenue for retailers. The forecast have been very conservative this year with expectations to be below 2011 shopping numbers. Regardless, the expectations versus reality come Monday will set the tone for the sector going forward. XRT, SPDR Retail ETF closed Wednesday at $62.26 off the November lows near $60. A short term target of $63.90 is the next resistance point for the sector and if the news is positive for the beginning weekend of shopping could challenge the September highs near $65.40.
Breaking the sector down and looking for the opportunities within the specific retailers is where the opportunities lies from my view. With the expectations dampened overall for seasonal retail period it will be important to separate the winners from the losers. The ETF has 46 individual stocks and scanning to find the potential winners is the task we have taken on.
According a combination of analyst reports on the sector apparel could be the big winner this year. They concluded that there is not a big new electronics item on tap, the toy front looks equally as boring, and that opens the door for more clothes in your closet. If my teenage daughters are any indication, I would have to agree. All of them has asked for clothes this year versus electronics from years past. With that in mind let’s dig in.
Looking at the last month of trading to define the leaders during which time the ETF has a return of 0.08% or essentially flat. ANF, Abercrombie & Fitch has been the number one performer gaining 36.5%. The move came as a result of bad first and second quarter numbers, but they have a fresh new line for third quarter and sales were up along with profits climbing more than nine percent. Thus, the stock jumped and the outlook for the holidays is more of the same. Definitely one to watch.
Aeropastale (ARO) is considered to be one of the best in the class relative to specialty retailers. However, the stocks has been one of the worst performers of the year similar to ANF. That said, the stock seems to have found some support in the $12.20 range and bounced off the lows closing at $13.92 on Wednesday. If the stock can move above the high of $14.80 in September, $16-17.20 would be a reasonable target during the holiday season. They are starting to deliver new product at just the right time, and the outlook is positive for the holidays. Another one worthy of being on our Christmas list.
Gap (GPS) stores have run higher from the lows in June. They have been trading sideways and digesting the big move over the last three months. A recent test of support near the $33.20 mark has bounced back to resistance at $35.15, This is one ot watch as well to benefit from the apparel sectors. Fundamentals look good and another worth adding to our list as follow through on the move higher.
Macy’s (M) is best in the class of department stores. This is a company that has been performing well and remains consistent. Look for them to be one of the top performing relative to sales and the holidays. Will that translate into the stock moving higher? A break above $41.40 would be a new high for the stock. Adding this to our watch list as a leader.
Wal-Mart (WMT) and the layaway program is working, and they have done a good job of managing the pre-hype of the season despite the threats from employees about opening on Thursday. They are the worlds largest discount retailer and they are in position to have a big holiday season. This is not a stock to ignore. It is positioned to hold support at the 200 day moving average and move higher as we move through the holidays. Definitely one to add to the list.
It would not be Christmas without talking about SALES! The two that are tops on my list would have to be the worst of the bunch. Best Buy (BBY) and JC Penny’s (JCP). If you don’t believe these companies are going broke they offer some bottom fishing opportunities. Best buy has been rumored as buyout candidate and taken private for some time. Regardless of that rumor they stand to benefit from a holiday season that doesn’t have any one hot technology item. Thus, they can sell all their products as they look for a positive sales period. This is one stock that may very well be on worthy sale item. JC Penny’s is not much different as this has been a turnaround story that still hasn’t turned-around. They are also a buyout rumor for taking the company private. They have made great strides in changing the product mix and the delivery process, but it has not translated to the bottom line. Maybe the holiday shopping season will provide the boost they need? Both stocks could the greatest sale of the season, but then again they may be a return item for investors.
Plenty of opportunities in the retail sector and it is one worthy of our attention. Take some time to scan and define the potential winners. Put in place a strategy to benefit as the holidays play out for the sector overall. Maybe this will be one season where the returns benefit you.