2 Stocks That Are Bright Spots In the Retail Sector

Analyzing the shares of the SPDR S&P Retail ETF (XRT), as well as retail stocks Best Buy Co Inc (NYSE:BBY) and Childrens Place Inc (NASDAQ:PLCE)

CMT, Senior Market Strategist
Mar 3, 2017 at 1:29 PM
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It's no secret the retail sector has struggled over the past year, as evidenced by the price action of the SPDR S&P Retail ETF (XRT). Below, I'll outline levels I'm watching on the exchange-traded fund (ETF) -- including a potential area to jump in on a long play -- and explain why Best Buy Co Inc (NYSE:BBY) and Childrens Place Inc (NASDAQ:PLCE) stocks remain two bright spots within the retail sector.

XRT: Where To Jump In

XRT has been basically flat over the past year, down 4%. So far in 2017, the ETF has continued its lackluster ways, down 3% year-to-date. Despite the relative poor performance, shares of XRT are trading near an uptrending line that may signal a potential area in which to position yourself long. The one caveat: the entire price action since the 2016 low is corrective from the 2015 drop, which could portend to a similar drop -- and could see XRT in the mid-$30’s in the next six months to a year. 

XRT retail ETF chart
Chart courtesy of StockCharts.com

As alluded to earlier, there are some bright spots within the retail sector which look interesting for potential buys. The first is electronics retailer Best Buy Co Inc (NYSE:BBY). Here are eight things you should know about BBY.

8 Things to Know About BBY

  1. Best Buy recently reported disappointing earnings, missing on revenues and guiding below consensus estimates.
  2. The shares of BBY gapped lower to their year-to-date breakeven level, but quickly recovered, erasing the losses.
  3. BBY is finding support atop its 80-day moving average.
  4. A breakaway upside gap from mid-November is also holding as support.
  5. The $40 level is double the 2014 low, which was broken to the upside from this gap.
  6. Short interest is high, with 13% of the stock's float sold short. 
  7. It would take nine days to cover all these bearish bets, at BBY's average pace of trading -- plenty of fuel for an eventual short squeeze.
  8. There's also room for upgrades, as BBY sports just four "buy" or better ratings, compared to nine "holds" and two "strong sells."

Best Buy BBY stock chart March 3
Chart courtesy of StockCharts.com

The second stock I'm watching is specialty apparel retailer Childrens Place Inc (NASDAQ:PLCE). Here are five things you should know about PLCE.

5 Things to Know About PLCE

  1. PLCE shares are up more than 45% year-over-year.
  2. PLCE recently closed at an all-time high before retreating back to multiple layers of support: the 2017 breakeven level, their rising 80-day moving average, and the round-number $100 level.
  3. The company reports earnings on Wednesday, March 8, before the market opens.
  4. Despite PLCE's advance, 21% of the equity's float is dedicated to short interest.
  5. At the stock's average pace of trading, it would take more than 11 days to repurchase these pessimistic positions -- lots of short-squeeze potential.

PLCE stock chart March 3
Chart courtesy of StockCharts.com

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