3 Specialty Retail Stocks Ready to Bounce

Robust consumer confidence and retail sales underpin the industry

Specialty retail stocks rely heavily on the purchasing power of consumers, a favorable labor market, and rising wages. Therefore, it's no surprise that the industry has underperformed the S&P 500 Index by about 7.5% over the past month after the June jobs report disappointed. Like most other sectors, talk about a looming recession and constant trade war developments dominating news feeds haven't helped the space either.

However, encouraging July consumer confidence and retail sales data point to sound underlying fundamentals. The Conference Board (CB) Consumer Confidence Index registered its highest reading since December, while core retail sales for the month grew 1% – easily surpassing analysts' forecast of a modest 0.4% increase. Moreover, many specialty retailers continue to undergo restructuring and expansion activities to deliver a more personalized shopping experience in the digital era.

From a technical standpoint, three specialty retail stocks sit at crucial support and look ready to run higher ahead of the upcoming holiday shopping season. Below, we discuss how each company is tweaking its business model to keep competitive and explore several trading opportunities to snare a bargain.

Ulta Beauty, Inc. (ULTA)

Ulta Beauty, Inc. (ULTA) operates as a beauty retailer in the United States offering a range of cosmetics, skin-care products, fragrance, hair-care products, and salon accessories. The beauty retailer also offers full-service in-store salons, providing hair, skin, and brow services. According to a Barron's article, Guggenheim analyst Steven Forbes believes that investment in faster fulfillment centers coupled with digital innovation – such as using artificial intelligence (AI) to personalize the shopping experience – places Ulta Beauty in a position to secure additional market share. The company reports its second quarter earnings on Thursday, Aug. 29, after the market close. As of Aug. 19, 2019, Ulta Beauty stock has a market capitalization of $18.83 billion and is trading up an impressive 31.53% on the year, outperforming the miscellaneous retail industry and S&P 500 by 18.04% and 16.3%, respectively.

Despite the stock's strong year-to-date (YTD) gain, the price has slumped roughly 10% over the past month, but it finds crucial support at $318 from a 12-month horizontal line and the 200-day simple moving average (SMA). Those who take a long position at current levels should anticipate a move back to $360 – an area where the price may encounter resistance from the top trendline of a trading range that has been intact since early April. Manage downside risk by placing a stop-loss order under this month's low at $315.49.

Chart depicting the share price of Ulta Beauty, Inc. (ULTA)

Tractor Supply Company (TSCO)

With a market cap of $12.13 billion, Tractor Supply Company (TSCO) owns and operates rural lifestyle retail stores in the United States, targeting recreational farmers and ranchers. The company, which has 1,790 stores across 49 states, recently added more than 100,000 items to its website, along with buy-online-pickup-in-store options to fend off competition from e-commerce giant Amazon.com, Inc. (AMZN). Furthermore, the rural retailing specialist's new loyalty program, Neighbor's Club, should help tailor promotions more effectively. Analysts have a 12-month price target on the stock at $115.58 – 15% above Friday's $100.55 close. Although Tractor Supply's stock has gained 21.30% YTD, it has tumbled 10.47% over the past month as of Aug. 19, 2019. Investors receive a dividend yield of 1.19%.

Tractor Supply shares gained in an orderly uptrend between late December and July, with the 50-day SMA acting as a line of support. Since printing a 12-month high on July 19, the price has retraced sharply, providing a buy-the-dip swing trading opportunity. Look for an entry point near $97.50, where the price finds a confluence of support from the February swing high, May swing low, and 200-day SMA. Once in a trade, consider setting a take-profit order near resistance at $112.50 and cutting losses if price fails to hold the $95 level.

Chart depicting the share price of Tractor Supply Company (TSCO)

Genuine Parts Company (GPC)

Genuine Parts Company (GPC) distributes automotive replacement, industrial parts, and business products in North America as well as globally. The company announced in July that its wholly owned London-based automotive distribution company Alliance Automotive Group agreed to acquire Todd Group – a leading distributor of truck parts and accessories for the independent heavy-duty aftermarket. Management expects the deal to expand the company's reach in Europe and generate annual revenues of approximately $85 million. More recently, the $13.12 billion auto parts retailer agreed to sell its electrical/industrial parts distributor subsidiary EIS, Inc. to fund organic and acquisitive growth, reinvest in the business, repurchase shares, and repay debt. Genuine Parts stock has fallen nearly 15% over the past month as of Aug. 19, 2019. However, an attractive 3.43% dividend yield partially offsets the capital depreciation.

Since reaching their YTD high in early April, Genuine Parts shares have oscillated within a well-defined descending channel. A move to the pattern's lower channel line at $88 provides an excellent risk/reward trading opportunity. Those who take an entry should set a profit target toward the channel's upper trendline at $103 and position a stop beneath Aug. 15 low at $87.92. The trade offers a risk/reward ratio of just over 1:7 ($13.21 reward per share/$1.88 risk per share), assuming an execution at Friday's $89.79 closing price.

Chart depicting the share price of Genuine Parts Company (GPC)
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