Buy Calls on These 3 Amazon Rivals

ROST and TJX are among the best stocks to own in the second quarter, historically

by Andrea Kramer

Published on Apr 6, 2018 at 1:18 PM

While President Trump has been taking swipes at e-commerce titan Amazon (AMZN) lately, a handful of brick-and-mortar retailers have emerged on our radar. Ross Stores, Inc. (NASDAQ:ROST) and TJX Companies Inc (NYSE:TJX) shares tend to outperform in the second quarter, while Five Below Inc (NASDAQ:FIVE) could enjoy a short squeeze.  What's more, ROST, TJX, and FIVE options are all a bargain.

ROST Stock Could Explore Record Highs

Ross Stores stock has been among the best to own in the second quarter, looking back 10 years, per recent data from Schaeffer's Senior Quantitative Analyst Rocky White. Specifically, ROST shares have averaged a quarterly gain of 13.16%, and finished the second quarter higher 90% of the time.

The retail stock rallied to a record high of $85.66 in late January, before pulling back with the broader stock market. The equity subsequently found a foothold in the $74 area, and today is pacing for a third straight close above its 50-day moving average -- a feat not accomplished in more than two months. At last check, ROST stock is down 1.4% at $78.66. From current levels, another 13.16% rally in the second quarter would place the shares around $89 -- in uncharted territory.

An unwinding of pessimism in the options pits could also add fuel to the stock's fire. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ROST sports a 10-day put/call volume ratio of 1.58 -- in the 82nd percentile of its annual range. In other words, Ross options traders have been initiating bearish bets over bullish at a faster-than-usual pace during the past two weeks.

Options traders who believe ROST will resume its quest for new highs can pick up near-term contracts at a relative discount. The security's Schaeffer's Volatility Index (SVI) of 24% is in the 19th percentile of its annual range, suggesting near-term options are attractively priced, from a historical volatility perspective. Further, ROST sports a Schaeffer's Volatility Scorecard (SVS) of 89 (out of 100), indicating the shares have handily exceeded option traders' volatility expectations in the past year -- a boon for would-be premium buyers.

TJX Options Attractive as the Shares Outshine the Market

TJX stock is also on our list of best stocks to own in the second quarter, averaging a healthy gain of 11.78%, and positive 90% of the time over the past 10 years. The shares pulled back with the broader stock market correction in early February, but bounced off their 200-day moving average, and in late February gapped higher after the company reported solid same-store sales. While much of the equities market has struggled in 2018, TJX stock has gained nearly 10%, and notched a record peak of $85.21 just yesterday. Another 11.78% surge would put the security -- last seen 1% lower at $84.05 --  around $93.95.  

What's more, the TJ Maxx parent is also one of the rare stocks flirting with new highs while simultaneously sporting attractively priced options. The equity's SVI of 20% is higher than just 15% of all other readings from the past year, suggesting near-term TJX options are pricing in relatively low volatility expectations.

Short Squeeze Could Fuel the FIVE Fire

The shares of discount retailer Five Below are also within a chip-shot of new highs. FIVE stock was last seen down 0.7% at $72.03, but snagged an all-time high of $73.86 earlier this week.

The equity has done all this even as short sellers continue to pile on. Short interest jumped 11.1% in the past two reporting periods, and now accounts for 10.7% of FIVE's total available float. At the stock's average pace of trading, it would take nearly seven sessions to buy back these bearish bets -- plenty of fuel for a short squeeze.

Plus, as with ROST and TJX, FIVE sports attractively priced near-term options. Specifically, the retailer's SVI of 32% is higher than just 16% of all other readings from the past year.


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