Spurred by ongoing gains in the labor market, a falling unemployment rate and hopes of an acceleration in wage gains, retail stocks are on the move for the first time in months. The SPDR S&P Retail (ETF) (NYSEARCA:XRT) is is rising up and out of a four-month consolidation range as it recovers from a near-20% decline from its post-election high in December.
Additional pressure on the industry includes the dominant position of Amazon.com, Inc. (NASDAQ:AMZN) (and online competitors in general) and consumer spending trends, which show millennials are more interested in experiences rather than stuff.
But with a turnaround now at hand, watch for the XRT to lift toward its February/May high — which would also challenge the 200-day moving average — for a gain of roughly 10% from here.
If it happens, these three stocks, showing fresh signs of strength, should be big beneficiaries.
Retail Stocks: Target (TGT)
Click to Enlarge Target Corporation (NYSE:TGT) shares are enjoying an unbroken rise out of their July highs, rising nearly 20% up and out of a six-month trading range.
The 200-day moving average lies ahead. As does the late-February high near $66. A break of that would set up a move into the mid-$70s range last seen in December.
The company will next report results on Aug. 16 before the bell. Analysts are looking for earnings of $1.20 per share on revenues of $16.3 billion. When the company last reported on May 17, earnings of $1.21 beat estimates by 30 cents despite a 1.1% drop in revenue.
The company preannounced positive second quarter results last month driven by a slight increase in same-store sales versus the 0.5% decline previously expected.
Retail Stocks: Kohls (KSS)
Click to Enlarge Kohl’s Corporation (NYSE:KSS) shares are lifting out of a tight year-to-date consolidation range with a powerful move up and over resistance near prior highs and its 200-day moving average.
Shares are in the clear now, filling the early-January decline and setting up a move into the mid-$50s, a range last seen in November/December — which would be worth roughly a 25% gain from here.
The company will next report on Aug. 10 before the bell. Analysts are looking for earnings of $1.18 per share on revenues of $4.1 billion.
When the company last reported on May 11, earnings of 39 cents per share beat estimates by 10 cents despite a 3.2% drop in revenue.
Retail Stocks: JC Penney (JCP)
Click to Enlarge J C Penney Company Inc (NYSE:JCP) shares are the least developed of the names presented here; but also presents the greatest upside opportunity.
A return to prior highs set in December would be worth a 100% gain from here as the company continues to try to find its footing after years of management shakeups, drastically differing strategic visions and general retail malaise.
A cheap-chic alternative to mid-priced alternatives like Macy’s Inc (NYSE:M) could resonate in this environment of tightened discretionary spending setting up, at the least, a run at the 200-day moving average.
The company will next report results on Aug. 11 before the bell. Analysts are looking for a loss off four cents per share on revenues of $2.8 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
