This may be the year we see retail roar back. If you remove the last quarter of 2018, the sector posted strong performance numbers. Surging behind low unemployment, climbing consumer confidence, and a better-than-expected holiday season, retail hit fresh highs in 2018. Then, along with the rest of the market, the bottom fell out in December with stocks plunging to their worse end-of-year performance since the Great Depression.
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At the same time, consumer confidence remains high, oil prices low, and employment solid in the face of the retail rout. Add in the abating Chinese tariff pressures and a bullish picture is painted for retail and the overall market in 2019.
1. Under Armour (NYSE: UAA)
This nearly $9 billion market cap athletic performance apparel, footwear, and accessories company has roared higher during the first half of January 2019. Rocketing over 11% in several weeks, Under Armour boasts both the fundamentals and technicals to continue higher into 2019.
Make no mistake, the stock has suffered over the years but is higher by over 30% in the last 52 weeks. Its five-year plan for improvement is what has me fundamentally bullish on the shares.
The company has targeted revenue to return to low double figures, gross margins to grow to 48% plus, and earnings per share is forecasted to climb at a five-year CAGR of approximately 40%.
Taking a look at the weekly chart, the share price is sitting directly on the 200-week simple moving average (SMA). Getting long on a break out above this resistance at $20.00 per share with stops at $15.00 per share and a target price of $32.00 per share makes sense right now.
2. Foot Locker (NYSE: FL)
An athletic footwear retailer whose shares are higher by 7% this year and up by over 18% in the last 52 weeks.
The reason the stock is rising and should continue to climb is the hot performance of Nike (NYSE: NKE). Nike makes up close to 70% of Foot Locker's brand mix. Nike has decided to pull back on its wholesale operations to focus on its top vendors, which should continue to benefit Foot Locker.
As of the fiscal third quarter, year-to-date net income has improved, non-GAAP (Generally Accepted Accounting Principles) EPS is higher by 11%, and sales are up by just under 2%. During the quarter, the company repurchased shares and paid a dividend bellowing its stable cash position.
Technically, shares have broken out above a double top at $57.00 per share, setting up an ideal "buy" opportunity on any pullback.
Buying on the pullback in the $56.00 per share zone with a target price of $72.00 and a stop loss at $52.23 makes sense.
3. Gap (NYSE: GPS)
This global apparel retailer is trading lower by over 27% during the last 52 weeks. Throwing off a nearly 4% yield, the stock is ready to be bought. Add in the $400 million shares buyback, and this company just makes sense right now.
Despite the lackluster comparative store sales, what has me most bullish is the surging online business. The company is expected to report $3.5 billion of online sales in FY 2018. This trend has been moving steadily higher over the last several years and is expected to continue.
The company is brilliant to put resources into their online business. It's a bargain at the new lower price.
Get long now in the $24.60 per share zone with a target price of $32.00 per share and stops set at $22.37 per share.
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4. Lululemon (Nasdaq: LULU)
A high-end athletic clothing retailer who has seen its shares soar by over 80% in the last 52 weeks! Adding nearly 19% this year, a strong argument can be made to buy as a price momentum play.
Buying in the $144.00 per share zone with a $165.00 per share target price and stops at $135.43 is my play on this winning retailer.
5. Dollar Tree (Nasdaq: DLTR)
I love investing in stocks that have the support of activist investors. Starboard Value has just stated that it sees significant opportunities for value creation in the company. Dollar Tree responded that it looks forward to engaging with suggestions. It appears that Starboard getting involved will be a powerful catalyst for the shares.
This is a tremendously bullish occurrence. Get long on the pullback in the $93.00 per share zone with a $100.00 per share target price and stops at $91.93 per share.
Risks To Consider: There is considerable risk in the retail sector in 2019. Although I consider the above five names "best of breed" in retail, significant headwinds remain. Always use stop-loss orders when investing.
Action To Take: Consider adding one or more of the above retailers to your long-term portfolio.