What I Learned From My Weekend Fishing Expedition

I was gearing up for a weekend excursion to the lake recently. My father-in-law and I stopped by the local angler shop to pick up some tackle and see if we could get some insight on how the fishing has been.

The gentleman at the store told us that the nearby reservoirs were packed. We’re talking lines of trucks waiting to put their boat in the water. He said, “you don’t even need a boat, as they are packed so tight in there you could walk across the entire reservoir on boats without touching the water.”

Disappointed in the news we heard, and the fact he was sold out of the fishing gear we needed, we headed up to the big box store, Cabela’s.

We went to their fishing section, and it was nearly empty. The guy stocking the shelves told us it’s been like this for the last month. He can’t keep the stuff on the shelves.

Many of you know I live in the Pacific Northwest. And while Covid-19 has presented its own challenges where we live, the stay-at-home orders affected a lot of us, too. And being cooped up at home for an extended period of time gets people looking for ways to spend their time.

My wife and her big catch from one of our regular fishing trips.

Turns out, one of those ways (in our neck of the woods at least) is fishing. But when you look at the larger trends, this isn’t an isolated incident. Folks around the country have been spending their time (and money) hitting up the local home improvement and outdoor recreational stores.

And that’s exactly what my Maximum Profit pointed us to this week…

Retail Is A Mess (But Not All Retail…)

I thought it was a mistake… I wasn’t expecting to see these ticker symbols make it through my system’s strict criteria (especially in today’s environment). So, I double-checked that my Maximum Profit system had in fact updated correctly. It had.

Still having a hard time believing that two retail stocks were flashing strong momentum, I tossed the tickers into my charting system. And sure enough… both were hitting new 52-week highs, had the volume, cash flow, and relative strength to support it.

You can probably guess why I was so puzzled that two retail stocks would be flagged by the system. Everyone knows retail is struggling. Perhaps you saw the headlines that J.C. Penney (NYSE: JCP) filed for bankruptcy, joining the likes of J. Crew, Gold’s Gym, Neiman Marcus, True Religion Apparel, and Stage Stores, among others.

Just last week, I showed readers this startling chart concerning retail spending…

To summarize what I said back then, this shows the most recent retail numbers that came out on May 15. It shows just how bad things have been for many retailers. (But not all — more on that in a second…)

As you can see, in March monthly retail spending dropped over 8%, which was already twice as bad as the worst month during the last financial crisis. Then April’s numbers came out and the picture was even gloomier than investors expected. They were anticipating a 12% drop compared to the 16.4% collapse in month-over-month retail sales.

Diving deeper into retail segments, clothing and clothing accessories were hit the hardest (down 89% year-over-year), next was furniture stores (down 67%), and finally department stores (down 47%).

The point is, this health pandemic has kept folks cooped up in their homes. And it has been devastating for retailers along with many other businesses. But as bad as the retail numbers have been, there’s been a handful of retailers that have done quite well…

These Retailers Are Thriving…

While the overall retail numbers have been dismal, other retailers are seeing a surge in sales…

If you’ve been tackling your “honey-do” list, working in the garden, or doing any sort of home maintenance, then you’ve likely seen a different story on one of your trips to the nearest home improvement store or nursery.

These stores have been packed…

The financials from these types of retailers have told a different story during the coronavirus shutdown.

Home Depot (NYSE: HD) reported earnings May 19, while competitor Lowe’s (NYSE: LOW) followed the following day. While Home Depot reported profit that missed expectations ($2.08 EPS versus expectations of $2.27) sales jumped 7.1% to more than $28.2 billion. More impressively, same-store sales grew 6.4% from a year ago, which beat analyst estimates of 4.3% growth.

Lowe’s posted even more impressive results: earnings per share of $1.77 on nearly $19.7 billion in sales (both exceeding analyst expectations). Its same-store sales climbed an impressive 11.2%, and website orders surged 80%.

Shares of both stocks have rebounded from the March selloff, and are hitting new 52-week highs.

Action To Take

Now, if you feel compelled to buy these stocks, I wouldn’t blame you. But these are not what I’m buying over at Maximum Profit. For one thing, because they are hitting 52-week highs, you have to wonder how much room is left for gains. And besides, they don’t qualify according to our system’s buy signals.

But they provide an example of how some retailers are not only surviving the pandemic but even thriving.

This summer, we’re seeing major catalysts for things like home improvement, outdoor recreation, and camping. These activities get you and your family out of the house, yet you remain away from other people. And that could provide a major tailwind for my latest pick.

And from a broader perspective, you need to be thinking about what long-term trends could be left in the wake of the coronavirus outbreak. For example, businesses will likely continue to shift towards a work from home model — Facebook, for example, announced it would embrace remote work. It anticipates that half its workforce would work remotely over the next five to 10 years. That means folks don’t have to be concentrated in highly populated cities and can focus on making the move to a more rural lifestyle, where they can enjoy the outdoors and grow their own food.

I want to encourage each and every one of you to think about these things like this as you continue to navigate this crazy market and put your money to work in this environment. You’ll be glad you did.

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