2 Retail Stocks At Risk for Short-Term Losses

TGT and LB have been two of the worst stocks to own after a rate hike

Karee Venema
Dec 15, 2017 at 11:46 AM
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The Fed issued its third rate hike of the year on Wednesday. While that could spell good news for Paypal (PYPL) in the near term, retailers Target Corporation (NYSE:TGT) and L Brands Inc (NYSE:LB) are among the worst stocks to own in the month after the central bank raises rates. Here's a closer look at how sentiment is stacked up on shares of TGT and LB ahead of what could be a difficult stretch.

Target Stock Stares Down Key Technical Resistance

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, Target stock has averaged a one-month loss of 6.07% after a Fed rate hike -- looking back to 2015, when the most current tightening cycle began -- and has not turned in a positive performance once. This would be more of the same for TGT stock, though, which is down 13.6% year-to-date.

More recently, the stock has rallied off its mid-November lows near $54, but is seemingly running out of steam in the $63-$64 region -- an area that served as support before a late-February bear gap, and contained a late-October surge. On Thursday, in fact, TGT hit an intraday high of $63.70, before settling down 1.2% at $61.94. And while the shares are up 1% today to trade at $62.61, its session peak is perched just below $63.

On the sentiment front, most analysts remain skeptical of Target stock, with 15 of 19 maintaining a "hold" or "strong sell" suggestion. And while the average 12-month price target of $59.47 stands at a discount to current levels, some brokerages appear to be shifting their outlooks, with two brokerage firms lifting their TGT price targets yesterday.

LB Stock Put Options Hot in Recent Weeks

L Brands shares have not been higher one month after a Fed rate hike since 2015, averaging a loss of 10.55% -- the worst of all S&P 500 Index (SPX) stocks. This negative price action would mark a sharp change of pace for the retail stock, which is up more than 67% from its late-August five-year low of $35 to trade at $58.85. More recently, the shares sliced neatly through their 320-day moving average -- and corresponding 64-week trendline -- for the first time since early 2016.

LB options traders have been bracing for a pullback, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 6.01 ranks in the 95th annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip.

This pessimism is seen among the brokerage bunch, too, with 16 of 24 analysts maintaining a "hold" or worse recommendation on LB stock. However, Morgan Stanley boosted its price target on L Brands to $70 from $59 yesterday -- territory not charted since this time last year, and well below the consensus 12-month LB price target of $51.33.


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