As stocks began to plunge in late February amid the unfolding coronavirus pandemic, very few names escaped the carnage as investors liquidated positions and ran for the sidelines to reassess the economic fallout from the deadly disease. Attention then quickly shifted to identifying companies that would benefit from the health crisis, with investors piling into stocks positioned to capitalize on trends such as panic buying, sanitizing products flying off shelves, and scores of people working from home.
However, as states begin loosen their lockdown restrictions and stockpiling of staple items begins to ease, names that have driven the market's recent recovery effort look susceptible to profit taking as the situation stabilizes. Let's zone in on three stocks in particular and analyze their charts for possible short sale opportunities.
Walmart Inc. (WMT)
Walmart Inc. (WMT) takes up the mantle of America's largest retailer by sales, selling everything from general merchandise to grocery items through more than 11,000 stores and multiple online channels. The $365.96 billion retailing behemoth saw unprecedented demand for essential household items throughout March as shoppers stockpiled in readiness for the pandemic. Analysts have a 12-month price target on the company's share price at $129.26, indicating little upside potential from Tuesday's $129.21 close. Walmart stock offers a 1.66% dividend yield and has surged 12.25% over the past three months as of April 22, 2020.
Despite heightened volatility, Walmart's share price ground sideways last month as the broader market incurred steep losses. More recently, the stock climbed above its March peak to set a fresh 52-week high at $133.38 as investors continue to bid up defensive names. However, a declining relative strength index (RSI) reading along with a bearish engulfing pattern earlier this week suggest buyer fatigue. Those who execute a short sale should think about buying to cover at $120 – an area on the chart that finds support from a horizontal trendline and the rising 50-day simple moving average (SMA). Cut losses if the price closes above the bearish engulfing candlestick's high.
Zoom Video Communications, Inc. (ZM)
San Jose, California-based Zoom Video Communications, Inc. (ZM) provides a communications platform that connects people via video, voice, chat, and content. The company has zoomed to prominence throughout the health crisis as millions of people use the firm's technology to stay connected while working remotely. Despite its rocketing demand, the stock looks overvalued, given that it trades at 357 times projected earnings. As of April 22, 2020, Zoom shares have a market capitalization of nearly $40 billion and are trading over 100% higher since the start of the year.
Zoom shares traded within a 45-point range for the first 10 months after going public in April 2019 before breaking out to new highs in March. As the broader market continued its recovery rally last week, the stock failed to take out its March high in a sign that the bulls may be losing momentum. Traders who open a short position at current levels should look at setting a profit target at the psychological $100 level, where previous resistance now becomes support. Manage risk with a stop-loss order placed somewhere above $160.
The Clorox Company (CLX)
With a market value of $23.87 billion, The Clorox Company (CLX) sells consumer and professional cleaning products. The company's four-in-one disinfectant and sanitizer wipes have been in high demand since the Environmental Protection Agency (EPA) gave the items a tick of approval for protecting against the spread of coronavirus. Credit Suisse analyst Kaumil Gajrawala downgraded Clorox shares to "neutral" from "outperform" last month, citing the stock's elevated valuation for the change – the company currently trades 21% above its five-year average forward earnings multiple. Clorox stock issues a 2.20% dividend yield and has added 25.63% year to date as of April 22, 2020.
The firm's share price has remained in a steady uptrend over the past four months after breaking above a year-long trading range. Nonetheless, the price has stalled in recent sessions, failing to push above the March high. Those who short sell here should set a take-profit order at $163, where the price encounters support from the previous trading range's top trendline. Minimize downside with a stop placed above this month's high at $197.66.