What do consumers do when they receive unexpected checks from the government? Some pay off debt or use it for rent money. Others run out and buy a new pair of shoes. And by the look of today’s three charts, countless shoe-hungry citizens did the latter with at least part of their stimulus money. That makes them all top stocks to buy if you’re looking to cash in on the boom in retail stocks.
The reopening trade has been playing out on Wall Street for months. The days following last March’s crash laid the groundwork for an inevitable rebound, but it was November’s Pfizer (NYSE:PFE) vaccine news that ultimately brought buyers to the yard. Airlines, cruise lines, restaurants, retail – you name it. They all got bid up in the euphoria.
Based on this month’s earnings reports, the following shoe companies smashed expectations and are deserving of your attention.
Let’s take a closer look at their price action and build an options trade to capitalize.
Shoe Stocks to Buy: Crocs (CROX)
All retail stocks have recovered to a certain degree, but perhaps none has been as impressive as Crocs. Its share price has grown over 10-fold in the past year – 10-FOLD! To gap as high as it did on earnings after such a parabolic rise says something about just how good the numbers were.
For the first quarter, the sizzling shoemaker earned $1.49 (adjusted) per share on $460.1 million in sales. The Street was expecting earnings of 89 cents on $415 million of revenue.
While the fundamental argument is unassailable, I will admit to some hesitation with piling in after such a large price gap. The price is wrestling with $100 per share, which carries psychological significance and could serve as a logical area to ring the register. The ideal scenario is to have the stock pause or pullback to create a more compelling entry point.
For now, be patient.
If we get a retracement, consider selling June bull put spreads with a strike below $75.
Skechers USA (SKX)
While Skechers’s share price hasn’t ballooned as much as CROX, it’s still risen a considerable amount. In fact, with the recent jump after earnings, SKX stock finally returned to its 2015 peak. The bullish narrative is the same as Croc’s, albeit not as explosive. However, I do like the price pattern better.
SKX is trending above all major moving averages. The earnings gap created a sharp uptick in momentum and gives us a much better vantage point to buy the dip from. And, unlike CROX, Skechers has already retreated three days toward support. If Crocs is listening – this is the type of price action I want to see post-gap.
Given the magnitude of the jump, I doubt we fill the entire gap, regardless of how deep the stock retreats. This is a buy.
The Trade: Buy the June $50/$55 bull call for $1.50.
Shoe Stocks to Buy: Foot Locker (FL)
Foot Locker rounds out today’s shoe stocks to buy. Its price trend has been moving higher alongside the rest of the industry. Over the past two months, a sideways consolidation pattern has emerged and carries two benefits. First, the overbought conditions on its weekly chart have eased. Second, we now have a logical resistance zone to use for a breakout trade.
Rather than going dead neutral, we have seen higher pivot lows develop throughout the digestion, which gives the pattern more of an ascending triangle look. The trade idea here is simple. Buy FL stock if it pushes above $60.
Implied volatility sits at the 15th percentile, and signals premiums are cheap.
The Trade: Buy the June $60/$65 bull call spread for $2.00
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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