3 Amazon Victims That Could See More Downside

Amazon's forays into grocery and fashion have weighed on Kroger and Macy's stocks

Andrea Kramer
Jun 21, 2017 at 10:40 AM
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E-tail giant Amazon.com, Inc. (NASDAQ:AMZN) has blazed a trail of destruction in the past week, leaving grocery chains and retailers quaking in its wake. Not only did Amazon's plan to buy Whole Foods send stocks like Kroger Co (NYSE:KR) into the red, but yesterday's announcement of a new Amazon Prime fashion service sent apparel retailers like Macy's Inc (NYSE:M) reeling. Today, shoe sellers like Foot Locker, Inc. (NYSE:FL) are getting battered amid rumors that Nike could be close to selling directly on Amazon. What's more, the lackluster performances of KR, M, and FL stocks could leave the AMZN victims vulnerable to even more selling pressure in the next week, if recent history is any indicator.

Window Dressing Could Drag On Recent Underperformers

As Schaeffer's Senior Quantitative Analyst Rocky White outlined this morning, "window dressing" -- when fund managers spruce up their portfolios at the end of the quarter -- tends to be especially prevalent at the end of the second quarter, which wraps up next week. As such, the worst stocks over the past six months could get dumped in the short term, so as not to be a blight on fund managers' collective portfolio. Among the 20 stocks most at risk, based on year-to-date performance, are Kroger, Macy's, and Foot Locker.

Kroger Stock Knocked Out By Earnings Forecast, Whole Foods Buy

Kroger stock was hit with a one-two punch in the past week, surrendering more than one-quarter of its value. The shares gapped lower on June 15, following a weak earnings forecast, and the following day gapped lower yet again, as competition concerns arose from the Amazon-Whole Foods deal. As of yesterday, Kroger's year-to-date loss north of 37% ranked the third stock on the list of S&P 500 Index (SPX) components most at risk of window dressing.

KR stock touched a three-year low of $20.46 late last week, and was last seen 0.2% lower at $22.33, likely to the delight of recent short sellers. In fact, short interest on Kroger grew by 22.3% during the most recent reporting period, though these bearish bets account for only 2.5% of the stock's total available float.

Macy's Bears Can Buy Short-Term Options On the Cheap

Macy's stock is ranked second on White's list of SPX members most likely to be unloaded ahead of the third quarter, with the shares more than 38% lower in 2017. M stock has been stair-stepping lower since late 2016, and touched a six-year low of $21.51 on June 7, the day after the department store chain issued a gross margin warning. At last check, M shares were 0.8% lower at $21.93, as retail stocks continue to writhe in the face of Amazon's foray into fashion.

Traders expecting M stock to extend its decline through the end of the quarter can pick up short-term options at a relative bargain right now. The stock's Schaeffer's Volatility Index (SVI) of 31% is higher than only 10% of all others from the past year, pointing to attractive near-term options prices, from a historical volatility standpoint. Meanwhile, Macy's stock sports a Schaeffer's Volatility Scorecard (SVS) of 96, indicating the stock has exceeded options traders' volatility expectations in the past year.

Nike Rumors Rock Foot Locker Stock

Foot Locker stock is just off a three-year low of $44.87, and was last seen 8% lower at $46.28. Shoe retailers are getting drilled today, after Goldman analysts said Nike is close to a direct-sale relationship with Amazon. Even before today, FL stock was on White's list of window-dressing risks, and the shares are now down more than 32% year-to-date. Still, 11 of 17 analysts maintain "strong buy" opinions, leaving Foot Locker shares vulnerable to a flood of downgrades.

As with Macy's, speculators expecting more downside for FL in the short term can pick up the stock's options at a discount. The equity's SVI of 29% is still in the relatively low 28th percentile of its annual range, and its lofty SVS of 78 indicates Foot Locker shares have made bigger moves on the charts in the past year, compared to what options traders had priced in.

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