U.S. stocks, by most measures, returned to all-time highs Wednesday. The NASDAQ Composite is knocking on the door of 10,000. The Dow Jones Industrial Average is a bit off its record, but 30,000 still seems an inevitability at this point.
Yet as we discussed in Tuesday’s big stock charts, the rally in broad market indices hasn’t necessarily been, well, broad. Unloved sectors generally have stayed unloved. Cheap stocks usually have stayed cheap.
Thursday’s big stock charts return to that theme, focusing on three names sliding despite record highs for two of the three major indices. The near-term question is if and when support will arrive. The longer-term concern might be when, or if, investor preferences will rotate back to these stocks and their sectors.
Toyota Motor (TM)
Struggles at legacy U.S. automakers have garnered the headlines, but Toyota Motor Corporation (NYSE:TM) stock has had its own problems. Shares are up just 2% over the past five years. The first of Thursday’s big stock charts suggests that isn’t likely to change any time soon:
- TM stock now is firmly in a downtrend that began in November. Wednesday’s sell-off moved the stock to a three-month low. Volume is concerning as well, with heavy trading yesterday and year-to-date. Support needs to hold here, or else Toyota stock likely tests the 200-day moving average. If that breaks, more downside is possible.
- Toyota stock is cheap, but in context, it’s not necessarily that cheap. An 11x multiple to fiscal 2021 (ending March) earnings estimates is below that assigned the market as a whole. But U.S. rivals Ford (NYSE:F) and General Motors (NYSE:GM) have far lower multiples, and auto manufacturing is a notoriously cyclical business. Earnings multiples should be compressed at this point in the economic cycle, and value (and income) investors may be more willing to time the bottom with U.S. manufacturers. The spread of the coronavirus across Asia adds another potential near-term risk.
- It can’t be ignored that TM, F, and GM are struggling as Tesla (NASDAQ:TSLA) goes parabolic. And as discussed on Tuesday in the context of auto parts supplier BorgWarner (NYSE:BWA), the relative shift in fortunes makes some sense. TSLA is rising as investors price in higher market share for Tesla’s electric vehicle lineup. That share has to come from somewhere, and Toyota is one of the potential casualties given the importance of its Prius hybrid. It may simply be that shares of Toyota and other legacy automakers are going to stay stuck unless Tesla pulls back — if it does at all.
PACCAR (PCAR)
Commercial truck manufacturer PACCAR (NASDAQ:PCAR) has outperformed its passenger car counterparts, but not by much. PCAR stock has gained just 15% over the past five years, badly underperforming the broader market. And the second of our big stock charts shows reason for near-term concern:
- The fade in recent sessions has led PCAR stock to exit a narrowing wedge pattern — a move which suggests potentially accelerating downside. There’s a bit of a head-and-shoulders pattern in recent trading, which similarly leans bearish. Support did hold around $74 late last month, and investors may again step in around those levels. But if not, there’s a path toward $70, where the 200DMA has to hold and 2019 resistance needs to flip to support.
- Like auto stocks, PCAR stock is cheap, at less than 11x 2019 earnings per share. PACCAR stock shares some of the same worries, however. Trucking is a cyclical business. Tesla, at least in the eyes of its most bullish shareholders, looms as a possible competitor. More broadly, this simply hasn’t been the kind of business that has attracted much in the way of investor optimism in recent years. Investors are buying growth and tech (and usually both), not old-line manufacturers of pretty much any kind.
- That almost certainly will change at some point and in fact did last year. As PCAR stock (and other value plays) rallied beginning in late August, the likes of Shopify (NYSE:SHOP) and Roku (NASDAQ:ROKU) were falling hard. That brief rotation into value stocks has reversed, however, and at least for now, there’s not much evidence it’s coming back.
Capri Holdings (CPRI)
As seen in the third of Thursday’s big stock charts, Capri Holdings (NYSE:CPRI) has been one of the quieter victims of coronavirus fears:
- Technically, the problem is simple: CPRI stock simply looks like a falling knife. Support may hold at early September lows above $25, but the stock has plunged through a wedge and a “death cross” is on the way, once the 50-day moving average crosses the 200-day. Volume has been reasonably high during the sell-off of the past month as well. At least for now, there’s little sign of buyers willing to step in.
- Fundamentally, the case admittedly is more intriguing. CPRI now is one of the cheapest stocks in the market, trading at 6.2x the midpoint of fiscal 2020 (ending March) EPS guidance. That guidance includes an estimated 40-45 cents from the coronavirus; add that back, and the price-to-earnings multiple drops to about 5.6x.
- To be sure, pandemic fears represent a real problem. Capri acquired Jimmy Choo and Versace in recent years in part to capitalize on growth in Asia. That growth now will be delayed. But the opportunity isn’t necessarily lost, and investors have shown faith in stocks like Apple (NASDAQ:AAPL) and Starbucks (NASDAQ:SBUX) that also have significant Chinese exposure.
- Investors aren’t buying that value case right now, however, and the broader question remains: when will they? In retail in particular, and in the market more broadly, “too cheap” simply hasn’t been a catalyst. Again, that may change at some point. But investors in CPRI and other value plays have been saying that for years.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.
