These 4 Retail Stocks Could be Strongly Bullish in 2018

By Ralf Lai
6 years Ago

The retail sector is in deep trouble, especially in the U.S. What doest that mean to retail stocks in 2018? The charts of these 4 retails stocks could be very counterintuitive, here is why.

One man’s meat is another man’s poison. This idiom succinctly summarizes the current situation of traditional brick-and-mortar retail businesses globally. Such a devastating effect is particularly noticeable in the USA where many departmental & variety stores, apparel outlets and wholesale supermarkets have seen their stock prices plummet. Worst, they have to close down store after store, and are reducing massive headcount only to break-even. Visibly, their super discount tactics reducing prices to an ultra-cheap level through super-sales didn’t help neither.

The innovative concept of Business to Consumer (B2C) or online shopping has more or less changed the way we buy things. People are now able to buy bulkier items online (via internet/mobile apps) such as benchtop instruments, furniture, home appliances and etc internationally with credit cards without the need to travel. As conventional business is under attack by online e-commerce, the question is how long can brick-and-mortar last? Various analysts and reporters have been predicting the great retail apocalypse to get momentum in 2018! But is it really the case? We seek to provide unbiased research to educate our investors regarding this matter.

As it turns out, not all retail stocks are as gloomy as what the media has portrayed. InvestingHaven’s research team monitors the SPDR S&P Retail ETF – XRT to gauge the overall performance of the USA retail sector. This fund provides exposure to the following sub-industries: Apparel Retail, Automotive Retail, Computer & Electronic Retail, Department Stores, Drug Retail, Food Retailers, General Merchandise Stores, Hypermarkets & Super Centers, Internet & Direct Marketing Retail, and Specialty Stores.

Monthly chart of XRT

The monthly chart of XRT shows that retail sector peaked out in the 1^st quarter of 2015. After retracing to ~38, price has been consolidating for the past 3 years and the apparent topping pattern did not cause price to collapse. Instead, it went higher subsequently. There is some underlying bullishness in the sector as price seek to retest the previous resistance. Now, two scenarios can happen. Either price breaks the resistance of ~50 ultimately or it gets rejected and comes back down which has slightly lower chance.

We screen 4 retail stocks in this sector with larger chances of giving investment returns in 2018 and beyond.

Retail stock #1: CVS Health Corporation (NYSE ticker – CVS)

CVS is an integrated pharmacy healthcare company providing pharmacy care for the senior community through Omnicare, Inc. (Omnicare) and Omnicare’s long-term care (LTC) operations. That includes distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. It operates through three segments: Pharmacy Services, Retail/LTC and Corporate. The Company delivers products and services by advising patients on their medications at its CVS Pharmacy locations. Other services includes introducing programs for clients at CVS Caremark; delivering care to patients with complex conditions through CVS Specialty, and providing access to care at CVS MinuteClinic. As of December 31, 2016, the Company had more than 9,700 retail locations and more than 1,100 walk-in healthcare clinics. On top of that, the recent acquisition of Aetna (NYSE: AET) by CVS will surely enhance its value in the long run.

Monthly chart of CVS

The historical price movement of CVS can be described as an ultra-long term uptrend channel. It is fair to say that 95% of the time price moves in the upper portion of the channel. And the median support line is tested again in Oct 2017. The price structure since 2015 has morphed into a falling wedge which is generally bullish, unless price breaks hard below the median line at ~66. Our projection target of CVS for 2018 is ~100.

Retail stock #2: Shutterfly, Inc (NASDAQ ticker – SFLY)

Shutterfly is an online manufacturer and retailer of personalized products and services. The Company focuses on helping consumers manage their memories through photography. Through their product and services, the consumers are able to upload, edit, organize, find, share, create, print, and preserve their memories in a thoughtful manner. Surprisingly, with fierce competition from the likes of Facebook, Instagram, Pinterest and etc, Shutterfly seems to stand out amongst the competitions. However, various financial sources are giving a sell signal away very recently.

The monthly price chart of Shutterfly suggest a totally different scenario is playing out. If price breaks out of the triangle consolidation, it will be very bullish at least for 2018. Hence, we have a bullish upside target of ~67 in 2018, not forgetting a failed breakout that could see price get thrown back towards ~49. In case price does breaks below the lower triangle line, the outlook will turn bearish straight away although chances are low.

Monthly chart of SFLY

Retail stock #3: Penske Automotive Group, Inc (NYSE ticker – PAG)

PAG is an international transportation services company that operates automotive and commercial truck dealerships principally in the United States, Canada, and Western Europe. It also distributes commercial vehicles, diesel engines, gas engines, power systems and related parts and services principally in Australia and New Zealand. PAG employs more than 23,000 people worldwide and is a member of the Fortune 500 and Russell 2000. There are over 40 brands and nearly 40,000 vehicles available to suit the needs of customers.

Monthly chart of PAG

The monthly chart of PAG is really appealing and we couldn’t resist mentioning this stock. The price consolidation since 2014 has appeared to be a basing inverted head and shoulder formation which is generally bullish in nature, unless price breaks down very hard. In the near term, price is setting up to approach resistance level of ~55, should this price breached upwards, our projection target will be ~76 for 2018. Nevertheless, a fail break out above could see price testing 50 followed by 47. Below 38 the outlook turns bearish immediately.

Retail stock #4: Big Lots, Inc (NYSE ticker – (BIG)

Big Lots, Inc is a non-traditional, discount retailer operating in the United States. As of January 28, 2017, the Company operated a total of 1,432 stores. The Company operates through the discount retailing segment with merchandise categories include Furniture, Seasonal, Soft Home, Food, Consumables, Hard Home, and Electronics, Toys, & Accessories and more. We expect many investors will be asking why Big Lots are so successful when there are so many competitors around. Investinghaven has this unique philosophy for not probing the why when it comes to investing. This is because by the time we fully know all the why, price has left without us. Hence, it is chart, price structure and timing of getting in before the why happens.

Monthly chart of BIG

I believe our investors who have been following us closely would have shown a big smile looking at the monthly chart of BIG. Price chart after price chart, price broke out of massive triangle consolidation whenever this type of pattern emerged. The upside projection target is ~83 but beware of price gets thrown back to test 56.5 – 59 immediate support zone. In case price breaks below 50 again, the upside target will be compromised.

Read my other articles with related stock charts from different sectors:

Please be informed to weigh out your risk and discuss with your financial adviser or retail expert before investing. There is a small lag between price at time of writing and current market price.