The retail sector has transformed into an old school stockpicker's market as we head toward Black Friday, with a growing group of strong components that could hit new highs in coming months. These industry players are doing everything right as the threat of higher tariffs continues to grow, finding new suppliers, trimming expenses, and making it easier for their clientele to remain intensely loyal.
Those positive characteristics have lifted Target Corporation (TGT) more than 100% so far in 2019, highlighting their value in maintaining positive investor sentiment. On the flip side, mall anchors continue to do everything wrong, failing to compete against cheaper prices at Target, Walmart Inc. (WMT), and the entire universe of e-commerce companies. Those endless mistakes have just dropped Macy's, Inc. (M) stock within a few points of a 10-year low.
Mid-cap retailers appear to offer better value than overbought blue chips or struggling small caps at this juncture, with a broad selection of storefronts acting well with just one month before the Christmas holiday. Even so, it's wise for market players to focus on mid-cap components with the strongest longer-term outlooks to limit downside from a typical January slide that often follows final holiday sales metrics.
Iowa convenience store chain Casey's General Stores, Inc. (CASY) topped out in the mid-$130s in 2016 after a multi-year uptrend and entered a persistent downtrend that found support at a three-year low at $90 in June 2018. It completed a round trip into the prior high in December and eased into a narrow consolidation pattern, ahead of a June 2019 breakout that attracted excellent buying interest.
The rally paused in August, giving way to a rounded correction that ended in early October. The stock tested the swing low at $159 three times into the second half of the month and turned sharply higher, reaching the third quarter peak about three weeks ago. It has been carving the handle of a cup and handle breakout pattern since that time, predicting that the uptrend will reach the $190s in coming weeks.
Formerly known as Restoration Hardware, California home furnishings chain RH (RH) fell from grace in 2016 after posting a new high at $106, battered by media reports about toxins in its flooring products. The downdraft bottomed out at an all-time low of $24.41, ahead of a recovery wave that completed a 100% retracement into the prior high in the fourth quarter of 2017. It paused at that level for more than six months before breaking out in a strong uptrend that reached $164 in June 2018.
The stock carved a small double top with resistance at that level and broke down in April 2019, entering a downtrend that carried about 20 points before ending abruptly in June. The subsequent uptick caught fire, breaking out above the 2018 high in September and posting a series of new highs that demonstrate unusual strength in a mixed market environment. This looks like a perfect play to pick up on a minor pullback to new support near $190.
New Jersey's Burlington Stores, Inc. (BURL) hit a 52-week low in the upper $30s in the fourth quarter of 2015 and bounced strongly, breaking out to a new high in the second half of 2016. The stair-step rally continued into September 2018, when buying pressure fizzled out above $175. A November breakout attempt failed, reinforcing a trading range with resistance at that level and support in the $130s.
The stock posted two higher lows into August 2019 and broke out, lifting to $209 in a two-day vertical advance that followed second quarter earnings. It built a flag pattern at the peak for the three months and has broken out to an all-time high on Tuesday morning, despite missing on third quarter revenues and lowering fourth quarter guidance. The resilience highlights this issue's remarkable strength, with investors squarely focused on the long-term outlook.
The Bottom Line
These mid-cap retailers are perfectly positioned to hit new highs during the holiday season and beyond.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.