Since the recent market lows back in June, the rising tide managed to lift the majority of stocks. For those stocks that did not participate there are usually two ways of thinking about them:
1. They will catch up and move higher soon; or
2. They are weak for a reason and will remain underperformers.
When I look at Abercrombie & Fitch (NYSE:ANF), a stock that I’ve followed for many years, I currently think both apply.
Yes, the stock is weak for a reason. It doesn’t take much to see the declining sales, profit margins, rising cost of goods sold, and general (if only temporarily so) weakening of the brand itself.
On the other hand, we are still very much in an environment where the market swings from one central banker statement to the next, and any further supportive action on the part of central banks may easily lead to higher stock prices, including those stocks that don’t deserve to rise. By extension, that could lead underperforming fund managers to buy stocks across the board just to play catch up, and therefore may give a stock like ANF a lift.
Year to date, the stock is down more than 25%. However, it has also moved about 25% higher in the month of August and now sits below a three-month resistance area. A daily close nicely above the $37.50 to $38 area could move the stock up into the $42 to $43 area. Stops can be set near $33.70.
Keep in mind this company is weak, so this is a recommendation for traders only. Long-term investors should avoid the stock.