5 Retail Stocks Cowen Says to Buy

BURL and PVH stocks are the brokerage firm's top picks

by Karee Venema

Published on Feb 12, 2018 at 10:14 AM
Updated on Feb 12, 2018 at 11:10 AM

The U.S. stock market is trading higher today -- bouncing back from last week's sharp sell-off. The correction may have created buying opportunities for stock pickers, with Cowen pointing to the retail sector, in particular. The brokerage firm cited strong retail sales and consumer trends, and named Burlington Stores Inc (NYSE:BURL), Foot Locker, Inc. (NYSE:FL), PVH Corp (NYSE:PVH), Ralph Lauren Corp (NYSE:RL), and Skechers USA Inc (NYSE:SKX) as five stocks to buy on the dip -- noting BURL and PVH are its top picks. Here's a closer look at the retail shares.

Burlington Stock Could Pop After Earnings

Burlington Stores stock rallied hard from its mid-August lows near $79 to its Jan. 29 record high of $128.90. And while the shares sold off alongside the broader stock market in recent weeks, they found a foothold near $110 -- home to a 38.2% Fibonacci retracement of this recent surge, and their 80-day moving average -- and were last seen trading at $117.82.

Cowen said it expects Burlington Stores to beat fourth-quarter earnings estimates thanks to improvements in its domestic wholesale channel. If history is any guide, the shares could be headed higher in the session following the retailer's before-the-open earnings report next Wednesday, Feb. 21, considering BURL stock has had a positive earnings reaction in six of the past eight quarters.

Foot Locker Rewards Premium Buyers

Cowen highlighted improving trends at Foot Locker, and said the stock appears to have minimal downside. The equity's recent retreat from its late-January seven-month high above $53 was quickly contained by its 200-day moving average. FL still boasts a three-month return of 56% to trade at $46.98 -- and is one of the best stocks to own in February.

Those looking to bet on continued upside with options are in luck, considering FL has consistently rewarded premium buyers. The stock's elevated Schaeffer's Volatility Scorecard (SVS) reading of 97 means the shares have consistently exceeded options traders' volatility expectations over the past year.

PVH Shares Find Familiar Technical Support

After topping out at a record high of $157.96 on Jan. 30, PVH stock pulled back to familiar support atop its 60-day moving average. This trendline has contained nearly all of PVH's retreats over the past year, and has helped usher the shares to a 62% year-over-year lead. Today, the stock is at $145.70 in early trading.

Cowen also expects fourth-quarter PVH earnings to impress, with the retailer scheduled to report in late-March. In the meantime, the stock's call options are currently pricing in lower volatility expectations relative to their put counterparts, per its 30-day implied volatility skew of 28.3% -- in the 99th annual percentile.

Ralph Lauren Stock Could Capitalize on a Short Squeeze

Ralph Lauren's retreat from its Jan. 24 two-year high of $119.33 found a foothold in the $100-$102 region, which coincides with the round century mark and a 50% retracement of the retail stock's rally off its early November lows. The shares are still up 32% in the last 12 months to trade at $104.73 -- and a continued round of short covering could create tailwinds for RL. While short interest fell 10.2% in the most recent reporting period, it would take more than seven sessions to cover the remaining bearish bets, at the stock's average pace of trading.

Skechers Stock Options are Cheap

Skechers stock has been resilient during the broad-market retreat -- gapping 7.5% higher on Friday -- and tagging at two-year high of $42.73 in intraday action -- after the shoemaker's strong earnings report was met with a round of bullish brokerage notes. Today, the shares were initially positive, but have since swung down 1.1% to trade at $40.61. Nevertheless, SKX stock still maintains an 7.2% year-to-date lead.

Now is a prime time to bet on SKX shares with options, too. The stock's Schaeffer's Volatility Index (SVI) of 43% ranks in the 16th annual percentile, indicating low volatility expectations are being priced into near-term contracts.


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