Retail Stocks: The Price Is Right
03/19/2004 12:00 am EST
We're excited to add Price Headley to the advisors covered in the Money Show Digest. An expert technical analyst, Price is the editor of BigTrends.com, an online service focused on stock and options strategies. His latest sector s potlight is the retail arena.
"Last year's holiday shopping season was one of the stronger ones in recent history, so it's no surprise that retail stocks became very attractive to investors. What is surprising is that retail rally actually started in the middle of the year, and retailer stocks started sliding back right in the heart of the shopping season. That dip, though, now seems to be history, as retail stocks have again started a bullish trend and are breaking out to new highs.
"The Retail HOLDR (RTH ASE), which invests in a basket of leading retail stocks, topped out at 94.94 in early November before slipping as much as 9.8% off of that high in mid-December. But the recent surge has not only established bullish trend lines, it has also pushed RTH shares past that recent high. That break above a previous resistance line tells us that investors aren't afraid to keep buying shares at higher and higher prices.
"Technical indications confirm the power behind the move. We're seeing a lot of positive volume lately. And while the index may appear stochastically overbought, we're viewing this as a sign of strength rather than a reason to sell. If you look back to most of last year, RTH was in a similar position, but was still able to gain 27.9% during that overbought period.
"Fundamentally, these companies don't have anything close to the kind of opportunities you'll find in one of the tech sectors. On the other hand, they're not nearly as risky, or volatile. The average p/e here is 25.9. However, with earnings growing at 14% and revenue growing at 15%, the retailers are still an attractive holding. We won't set a target or stop for RTH, as this is a longer-term outlook. With discretionary spending (and incomes) on the rise, this bullish trend in retail could last quite a while."