Retail Sentiment Looking Positive…

Hey 5-Star Trader,

We’ve seen an explosion of interest in the retail sector as restrictions ease up across the land. It seems like everyone is excited to get back to the way things once were ― including me!

Overall, I love the way the retail sector is setting up for us. The retail exchange traded fund (XRT) is consolidating. Due to the positive reports we’ve seen thus far, it’s clear that retail is a major part of the current “reopening” trade that is underway. As states across the country continue to open their economies, retail will surely benefit.

However, as it relates to earnings, retailers that excel at their eCommerce and store pick-up strategies are those that I anticipate being the strongest. I also anticipate discount stores, grocery, and big-box retailers to be key players. Luxury retail still has a ways to go to catch up, as no one needed Kate Spade purses or high heels during quarantine (“needed” is relative to the individual, of course). 

Overall, I believe that consumer sentiment has shifted during the pandemic and in some ways it will never be the same again. Consumers have found ways to purchase their favorite retail goods not only at a discount, but in a way that is fast and easy. This trend will never go away. Look for retailers with quick shipping options, member benefits, and bulk products to blow away earnings. 

Key retail companies I’m watching this week include:

  • Clothing ― Urban Outfitters (URBN), Abercombie (ANF), American Eagle (AEO), Gap (GPS) 
  • Bargain — Dollar General (DG),  Dollar Tree (DLTR) 
  • Outdoors ― Lazy Holdings (Lazy), Dicks Sporting Goods (DKS) 
  • Big box ― Costco (COST), Best Buy (BBY)

Breaking that list down even further, I do believe some will perform better than others. Clothing and bargain retailers may have seen a massive increase at the beginning of the pandemic, but this won’t show measurable impact long term. Outdoor stores and big box retailers will probably see the best numbers.

Either way, in the options market, due to high implied volatility and lots of eyes, they look great for selling some at the money premium. Why not do a little retail ticker shopping for high-probability trades?

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