by Johnson Research Group | November 28, 2012 11:01 am
‘Tis the season for retail, right?
For the most part, the media and analysts will focus their attention on traditional retail’s Holy Trinity — Walmart (NYSE:WMT), Target (NYSE:TGT) and Best Buy (NYSE:TGT) — as we move through the season. After all, when it comes to shopping, they’re the long-standing traffic leaders.
That’s nice, but as far as investors go, everyone already knows this; it’s the unknown or underappreciated opportunities that pay off big. So let’s look at four members of the SPDR S&P Retail ETF (NYSE:XRT) that the late Rodney Dangerfield truly could have appreciated — despite doing something special, they’re not getting any respect.
Why are these retail stocks underloved? Simple: Analysts aren’t paid to be wrong on a stock, which means an outperforming stock should grab analysts’ attention and drive upgrades. So, we closely monitor a list of stocks that are outperforming the market but have low analyst recommendations, with the thought that they’ll be more likely to see upgrades soon, followed by even higher prices. Here are four such retail stocks to buy:
Click to Enlarge Expedia (NASDAQ:EXPE) provides travel products and services to leisure and corporate travelers, both online and offline. Like Priceline (NASDAQ:PCLN), EXPE has benefited from a rebound in business as travelers get back on the road. From our perspective, this is where the similarities end.
During the past three months, EXPE shares have moved more than 15% higher compared to a 8% return for PCLN. Year-to-date, EXPE has more than doubled vs. a 37% return for PCLN.
Another difference is the current analyst recommendations. Currently, 42% of the analysts tracking EXPE have a buy recommendation while almost 80% of the analysts covering PCLN have it rated a buy.
Given the technical and fundamental performance of EXPE shares, you have to expect the analyst community to start considering upgrades — that, of course, would drive prices higher. Grab this underappreciated retail stock before the Street does.
Click to Enlarge Discount retailer Family Dollar (NYSE:FDO) knocked the cover off of the ball in 2009 and 2010 as shoppers searched for bargain basement prices. Now, with signs of an economic recovery taking root, the market has all but forgotten about the discounters.
History tells us that the lack of attention allows for an opportunity in these companies as they continue their strong trend.
Currently, FDO shares are trading 20% higher for the year, though you wouldn’t know it from the current buy recommendations. As of now, there are only 48% buys on FDO, which has the potential to change as we move into 2013.
With investors and analysts prepping for another economic slowdown in 2013, companies like FDO are likely to attract attention as market leaders again. Look for analysts to stop straddling the fence and start upgrading FDO and similar stocks.
Click to Enlarge The Black Friday retail results are starting to flow in, and one company that saw heavier traffic was Urban Outfitters (NASDAQ:URBN).
Like our other stocks, URBN has been on a tear, returning almost 40% so far for 2012. Also like our other companies, URBN has fallen out of favor, with less than 50% of the covering analysts ranking the stock a buy.
Now, earnings results for this teen retailer have been mixed in the past year, but a win during the holiday season would give the stock the boost that would attract upgrades and continue the cycle.
The URBN chart suggests an improving trend as the stock’s 20-day moving average is preparing to cross back above its 50-day trendline. We refer to this as a “Silver Cross,” a pattern that often attracts technical buyers as it signals an improving picture for the stock.
Click to Enlarge Dillard’s (NYSE:DDS) operates old-school department stores (remember those?) in larger malls.
The company made news this week by announcing a special dividend ahead of the expected tax hikes. The 2% rally off that news helped, but the stock already was on a tear for the year.
DDS has just two analysts, but both are ranking it a hold, which doesn’t make sense given the stock’s performance. And the company has bested earnings expectations all four of the last four quarters by an average of 22%. It’s amazing that alone hasn’t attracted the attention Dillard’s deserves.
With the economy improving, it makes sense that the middle-class shoppers will return to the malls — stores like Dillard’s are where they usually go. Put this one in your bag before it gets the attention it deserves.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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