There’s less fervor surrounding retail stocks entering Black Friday this year.
For one, the stock market is suddenly shaky again, down 2.3% in the last two weeks. That’s a bit of a departure from the normal November bump, though the month is still young and stocks were coming off a very strong October.
Another reason is, simply, that retail sales have been sort of mediocre. Take last month’s results, for example: October retail sales rose just 0.1% from September, less than the 0.3% improvement economists were expecting. Sales have been trending steadily downward since May. As a result, retail stocks have taken it on the chin.
The SPDR S&P Retail ETF (XRT), which tracks a basket of retail stocks and is heavily weighted in consumer cyclicals, is down nearly 6% in the last three months and 8.2% since November 3—more than triple the dip in the S&P during that time.
And some of the highest-profile retail stocks have been the worst performers. Those include (all returns in the last three months):
Wal-Mart (WMT): -13%
Target (TGT): -8.4%
Macy’s (M): -39.5%
J.C. Penney (JCP): -13.2%
Best Buy (BBY): -3.8%
So that’s the backdrop heading into this holiday season. Not exactly a climate ripe for retail investing.
But here’s the thing: Black Friday is always a big hit. Last year, 133.7 million people—55% of all Americans—shopped during the Black Friday weekend, spending an average of $380 per person. Even in 2008, in the midst of the worst recession since the Great Depression, Americans spent over $41 billion on Black Friday weekend.
Spending has trended down the last two years since peaking at $59.1 billion in 2012, dipping to “only” $50.9 billion in 2014. However, the rise of Cyber Monday is partially responsible for that dip—many people are shunning the long lines and the cold weather for the comfort of their couch and a computer screen a few days later. Last year, Cyber Monday sales topped $2 billion for the first time ever, an 8.5% improvement over the previous year. That came on the heels of even bigger jumps in Cyber Monday spending in 2013 (20.6%) and 2012 (30%).
Any way you slice it, people spend a LOT of money at retail stores this time of year, and retail stocks typically get a nice bump as a result.
That said, we tend not to bottom-feed here at Cabot, and there are plenty of retail stocks that look untouchable at the moment. So let’s focus solely on the retailers with charts that are trending in the right direction.
Here are three that stand out:
This one’s a no-brainer. Amazon dominates Cyber Monday, as the e-commerce giant has expanded its discount deals from a day to a full week in recent years. The stock is already up more than 19% in the last three months and 52% in the last six months, trading above its 50-day moving average since late October.
With Black Friday and Cyber Monday approaching, volume in AMZN has picked up in recent weeks. The stock was recently recommended in our Cabot Top Ten Trader growth advisory, which recommends the best-performing stocks on the market every Monday. At the time, the stock was trading at 573; it’s now up to 646!
Bottom line: AMZN is the anti-Wal-Mart, the poster child for “new-world” retail shopping, and perhaps the biggest beneficiary of the shift in Black Friday spending habits.
(And if you want to subscribe to Cabot Top Ten Trader to monitor our views on AMZN and other top-performing stocks, click here.)
EBay is another Cyber Monday-centric retail stock, and one that’s been performing almost as well as AMZN.
Shares of the consumer-to-consumer online marketplace are up 15% in the last month, with the stock popping from 24 to 29 in late October and early November. At 28, EBAY is still comfortably above its 50-day moving average (26), and the stock has a history of getting a nice bump this time of year. In 2014, EBAY jumped 4.8% in three weeks following the Black Friday holiday. In 2013, it shot up 13.4% in the month after Black Friday.
Offering discounts of up to 90% on products such as tablets, smartphones and clothes, eBay should have another big Cyber Monday this year. Buying a few shares now and seeing where the stock goes over the next month could work out well.
Compared to Amazon and eBay, McDonald’s feels like a dinosaur.
But 55% of the country still shops at brick-and-mortar stores on Black Friday weekend, and all those people need to eat somewhere—preferably on the cheap—while they’re shopping. By sheer volume of locations, McDonald’s is likely to be the most popular choice. It also happens to be the best-performing fast-food stock right now.
MCD is up 22% since the August 25 market bottom, gapping up from 102 to 112 in late October on the strength of a surprisingly strong third-quarter earnings report. After struggling in previous quarters and losing favor on Wall Street, same-store sales grew 4% last quarter thanks in large part to international growth, and U.S. sales expanded 0.9%, marking the first domestic sales growth for the fast-food giant in eight quarters. The company also reported its best net income in five quarters.
Is it the mark of a turnaround? Or merely a one-quarter aberration? The current quarter, fueled by hungry holiday shoppers, will be telling.
In the meantime, MCD is an uptrending stock with plenty of momentum.
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