3 Resilient Retail Stocks To Buy Now

retail stocksThese three retail stocks show that Amazon has its limitations

Retail recession? World domination? Based on what this strategist is seeing, those well-worn blanket statements regarding retail stocks are far from accurate and fail to recognize the large number of outfits rising to today’s challenges.

What would an article on retail stocks be without mentioning Amazon.com, Inc. (NASDAQ:AMZN)? Well, lacking, for one. As literally everyone should know by now, Amazon has been instrumental in … redefining the retail landscape.

Yet even with the Amazon effect, a few survivors — and even thrivers — remain. Even in an industry with notorious thin margins and a potentially unfavorable interest rate environment, most retail stocks simply aren’t going bankrupt. Too boot, many retailers are actually moving in the right direction in a market that’s more about changing dynamics than recession-like conditions.

Having said that, today I’ll look at three retail stocks that are making the right moves, and offer a limited-risk options strategy just in case the market throws any of these stocks out with the bathwater.

Retail Stocks to Buy: Coach (COH)

Once synonymous with just selling luxury handbags and fine leather goods, Coach Inc (NYSE:COH) has managed to broaden its brand and appeal with today’s consumers through smart acquisitions, increased product offerings, and licensing and distribution deals.

And yes, those handbags and other leather goods still sell quite strongly and still make a favorable impression among discerning shoppers.

There’s also Coach’s select storefronts in key cities. The brick-and-mortar presence maintains the company’s exclusivity, and helps Coach grow its online sales without fear of reducing the brand’s social status.

Let’s be clear: COH stock isn’t the growth juggernaut of days past. Nonetheless, recent reaffirmed full-year guidance and the company’s strategy of reduced product discounting are good signs of Coach is moving beyond being a turnaround play. The chart is pleasant, too. Following Coach’s recent earnings announcement and buyout of Kate Spade, two bullish gap reactions days apart vaulted shares above the neckline of an inverse head-and-shoulders bottoming pattern.

A conservative price target of COH’s technical breakout would reasonably put the retail stock near $60 per share based on a measured move technique. But it could take months if not a year to make that move.

The Trade: I like a long Aug $47/$49/$50 call butterfly here. This modified, bullishly targeted position is priced at 55 cents. If COH can rally modestly to $49 by expiration, you’d achieve the max payout of $1.45. Below $47, the debit is lost. And should Coach overshoot the spread to the upside, you still keep a profit of 45 cents.

Given there is an earnings event in early August, that safety feature could come in handy.

Retail Stocks to Buy: Walmart (WMT)

Next up on our list of retail stocks is Wal-Mart Stores Inc (NYSE:WMT). At last check, Walmart still is the world’s largest brick-and-mortar retailer. And it has learned a thing or two from Amazon as it continues to grow in the new paradigm.

Earlier this month, WMT shares received a boost from investors after the company narrowly topped views and delivered equally modest growth. More exciting, Walmart showed improvements in store traffic, as well as demonstrating authoritative e-commerce revenue growth of 63%.

Walmart also is showing continued signs of its technical wherewithal. After a bruising 2015 — a time when it appeared Amazon was on the verge of eating Walmart’s lunch — the company’s turnaround has helped with an emerging uptrend in WMT stock.

Following a test of the 200-month simple moving average and prior base congestion, shares of Walmart have established a higher high pattern that has cleared the 62% retracement level from its 2015 all-time-high.

The Trade: I like the Sep $80/$82.50 bull call spread. The trade is priced at 80 cents with WMT shares at $78.13. This vertical cuts down holding risk by nearly 50% versus a simple long call and maintains an earnings event as a catalyst.

The positioning of the spread does require WMT stock to prove it’s still on the right track with investors. However, for a potential return in excess of 200%, roughly 1% stock risk and a required move of less than 6%, I’d say it’s a nice way to shop for this retail stock.

Retail Stocks to Buy: Ulta Salon (ULTA)

Ulta Salon Inc (NASDAQ:ULTA) is best known for its brick-and-mortar presence where it can attend to clients’ beauty and health needs face-to-face.

It’s working, as is the retailer’s ability to maintain and grow customer loyalty online as evidenced by last week’s blushingly good earnings report.

The only blemishes as it relates to Ulta Salon are on the stock chart. And since we’re speaking of a handful of corrective bases, that’s actually a good thing. Ultimately, corrective bases tend to freshen up the technical picture for generating continued gains.

Following last week’s successful test of base support and subsequent earnings spike to all-time-highs, a move through $310 should clear the way for much higher prices in ULTA stock.

The Trade: The modified long ULTA Sep $315/$335/$345 call butterfly is attractive here. This one is priced for $4.25 with shares at $302.65. Similar to COH, there’s only upside if ULTA stock can rally above the lower breakeven of $319.25 on an expiration basis.

A max gain of $15.75 if ULTA was to land on $335 at expiration is possible, though not quite as realistic. Still, there’s a guaranteed profit of $5.75 if shares continue to rally aggressively beyond the butterfly’s positioning and stock risk of just 1.40%.

Note: Christopher Tyler is the author of this article. Investment accounts under Christopher’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. 

 

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  1. Deborah says:

    I have NEVER bought ANY retail stock they ALWAYS lose eventually and we never now when they will fall.

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