Retail Stock “Snapbacks” Could Deliver HUGE gains

We’ve seen our fair share of disasters this summer.

Wildfires are ripping across California. Hurricane Harvey left the fourth-biggest city in the U.S. submerged for days.

Now, Hurricane Irma is on a collision course with Florida. It is already one of the most powerful storms ever recorded with winds of up to 185 miles per hour.

Of course, the market also must deal with its fair share of catastrophes. This year’s big blow has come courtesy of a massive online retail operation called Amazon that has destabilized an entire industry…

Amazon’s destruction has forced a mass evacuation from brick and mortar retail plays. The SPDR S&P Retail ETF was down as much as 13% year-to-date at its low point late last month. That’s a stark contrast to the performance of the S&P 500, which is sitting on double-digit gains for the year.

The death of the old-fashioned shopping mall and the rise of Amazon remains an ongoing cultural event. As it continues to shake out, we will see more poorly run, unfocused retail operations hit the skids.

But the retail plunge has now reached extreme levels. That gives you a unique opportunity to pick up shares of select rock bottom retail plays as they begin bouncing off their lows.

Why trade traditional retail stocks as Amazon continues to batter the brick and mortar business model?

Quality Retail Stores Will Survive

Simply put, the concept of physical stores isn’t going anywhere. Sure, shifting market conditions are forcing most retail establishments to make some serious changes.

But it would naive to assume every single store in the country will close its doors and declare bankruptcy. Like any industry that finds itself in turmoil, the best businesses will adapt and survive.

Even after a devastating first and second quarter for retail, investors are starting to slowly sneak back to these beaten-down plays.

Over the past two weeks, for example, the SPDR S&P Retail ETF has quietly outperformed the S&P 500.

While the major averages tanked on Tuesday this week, retail stocks were one of the market’s lone bright spots.

Retail extended its gains Wednesday as the sector led the way, posting gains of more than 1.5%.

Can Retail Keep It Up?

Retail chart

Over the past couple of trading weeks, the retail ETF has jumped almost 6%. Meanwhile, the S&P 500 is up only 1.5% over the same timeframe.

Even factoring in the recent bounce, most investors are maintaining their bearish bets against retail. That means we can continue to seek out select retail “snapback” plays and grab double-digit profits.

Big Retail Snapbacks

Remember Walmart (NYSE:WMT)? Shares have quietly outperformed the S&P this year. It’s just a few ticks off its 2017 highs and up more than 18% year-to-date. And it’s not the only brick and mortar operation that’s moving higher. Even some of the most beaten-down retail operations are starting to catch a bid.

We’ve dogged mall anchors like Macy’s Inc. (NYSE:M) and even traditional “teen retailers” like Abercrombie & Fitch (NYSE:ANF). Yet both stocks are blazing their own comeback trails.

Macy’s stock is bouncing nicely off its August lows. The stock jumped more than 5% Wednesday alone – it’s best single-day performance in months, presumably helped by a somewhat positive analyst report that hit the wire in the early morning hours.

Meanwhile, Abercrombie shares continue to rip higher. After nose-diving toward its lows late last month, shares have gained nearly 50% over the past two and a half weeks. That’s an incredible move, even if it does turn out to be a dead cat bounce.

With more retail names carving out bottoms, it’s time to take a good look at “snapback” plays that could hand you a fast gain.

Sincerely,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning