The U.S. economy isn’t exactly booming, but it is growing. Recent metrics in many different areas suggest that there are actually some reasons why stocks are pushing higher other than the fact that the Fed keeps printing money. Of course, I do think the Fed is responsible for most of the upside we’ve seen here, but it’s definitely not the only reason why stocks are—and could easily continue—pushing higher.
Improved economic data, albeit at a modest pace, can be seen in the reduction in jobless claims and a declining unemployment rate, and an increase in industrial production. Perhaps most importantly, at least from a trading opportunity perspective, is the February retail sales data.
According to the Commerce Department, retail sales spending during the month increased at the fastest pace in five months in February, rising 1.1% compared with January. And while about half of that increase came as a result of higher gasoline prices, if you exclude added gasoline spending the metric still rose by 0.6%. Moreover, core retail sales (ex gas, autos and building supply stores) climbed 0.4% in February vs. January.
For traders, taking advantage of increased retail spending can come in many forms. You could buy select fashion retailers, but that’s subject to fickle trends. You also could buy large-cap retailers, but those stocks are more of a dividend play, and better suited for your long-term money.
Or, you can buy a credit card stock like Visa Inc. (NYSE:V).
Visa is one of my favorite ways to take advantage of consumer willingness to spend more money. These days, more money means using that plastic more, and Visa is the preferred plastic choice for millions around the world.
Click to Enlarge In early February, the company posted strong fiscal Q1 results which beat analysts’ estimates. Adjusted EPS rose 22% over the same quarter a year ago, and revenue spiked 10.7%. Wall Street consensus is for earnings to rise 13% next quarter (year over year), while revenue is expected to rise 10.5%.
Technically speaking, Visa has been forming a very nice bullish base right around its highs of $160 since early January. The stock now trades just slightly above its 50-day moving average. The chart here of V shows the 2013 consolidation that’s taken place after a six-month surge from June through December that resulted in a near-40% increase in the stock.
I suspect that Visa’s current base pattern is setting the stock up for another leg higher on any further positive retail sales news, and/or another positive earnings beat (Q2 results due in May). Taking a position in V at current levels could easily net you a 10-15% gain over the next three months.
Of course, the thing about stocks forming a base pattern is that often, that base can fail. To protect yourself on the downside if this does happen, make sure you place a stop-loss order in around 7-8% below your buy price.
At the time of publication, Jim Woods did not hold a position in any of the stocks mentioned here.