Time to Book Profits in Retail Stocks

NEW YORK ( TheStreet) -- Two important pieces of economic data due out this week could drive retail stocks.

On Tuesday, the Conference Board plans to release its Consumer Confidence index for August, and it's expected to increase slightly, to 67.0. Keep in mind that a neutral reading for confidence is between 90 and 120.

On Thursday, we'll get the latest readings on personal income and spending. Both are expected to increase by 0.4%.

I view strength in retail stocks as an opportunity to book profits, as my Web site, www.ValuEngine.com, shows that Consumer Staples stocks are 9.1% overvalued, while Retail-Wholesale stocks are 4.6% overvalued.

Today I am profiling the 28 stocks in the S&P Retail Index (^RLX). I am looking for opportunities to book profits on retail stocks trading near multiyear highs or all-time highs.

The daily chart for the RLX (644.98) (first chart below) shows an overbought condition, with the 12x3x3 daily slow stochastic reading at 83.42. The index is above its 21-day, 50-day and 200-day simple moving averages at 630.80, 819.80 and 587.87, respectively.

The weekly chart for RLX (644.98) (second chart below) shows a rising momentum (12x3x3 weekly slow stochastic) reading at 72.84. Weekly closes above the five-week modified moving average at 628.68 keeps the weekly chart profile positive. Major support is the 200-week simple moving average at 454.53.

The pop-up table above shows data from www.ValuEngine.com covering the 28 components of the RLX listed alphabetically.

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage, while those with a black number are overvalued by that percentage, according to ValuEngine.

VE Rating: A "1-Engine" rating is a Strong Sell, a "2-Engine" rating is a Sell, a "3-Engine" rating is a Hold, a "4-Engine" rating is a Buy and a "5-Engine" rating is a Strong Buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast One-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Analysis of the Retail Stocks in the S&P Retail Index

The overvalued/undervalued data show that 17 of the stocks in RLX are undervalued, with Office Depot ( ODP) undervalued by 73.1%, Best Buy ( BBY) undervalued by 52.4% and Staples ( SPLS) undervalued by 49.1%.

Best Buy, Sherwin Williams ( SHW) and Wal-Mart Stores ( WMT) have "5-Engine" Strong Buy ratings, according to ValuEngine.

At the other end of the spectrum, Office Depot, J.C. Penney ( JCP) and RadioShack ( RSH) have "2-Engine" Sell ratings, and Sprint Nextel ( S) has a "1-Engine" Strong Sell rating.

Nine of the 28 stocks traded lower over the past 12 months. RadioShack was the biggest loser with a loss of 77.6%. The biggest winners over the past 12 months were Gap ( GPS), up 119.2%, and Sherwin Williams, up 96.0%.

Only four of the 28 stocks are projected to decline over the next 12 months. The best projected gains are the Strong Buy-rated Best Buy, Sherwin Williams and Wal-Mart Stores.

Price-to-earnings ratios are relatively high for the stocks that have performed well.

Costco ( COST) ($96.25) traded to an all-time high at $97.76 on July 27. My annual value level is $89.71 with a monthly pivot at $93.45 and a quarterly risky level at $109.06.

Dillards ( DDS) ($74.47) traded to an all-time high at $76.33 on Aug. 9. My monthly value level is $72.83, and my quarterly risky level is $74.63

Dollar General ( DG) ($49.66) traded to an all-time high at $56.04 on July 10. I do not show a nearby value level, and my quarterly, semiannual and monthly risky levels are at $52.24, $53.23 and $53.83, respectively.

Family Dollar ( FDO) ($62.35) traded to an all-time high at $74.73 on June 14. My annual value level is $36.02, while my semiannual pivot is at $62.16 and my monthly risky level is at $66.06.

Gap ($35.12) traded to a multiyear high of $36.23 on Aug. 17, a level not seen since August 2002. My monthly value level is $32.06 with a weekly risky level at $36.82.

Home Depot ( HD) ($56.96) traded to a multiyear high at $57.17 on Aug. 17, a level not seen since August 2002. My quarterly value level is $54.42, and my monthly risky level is at $59.18.

Limited Brands ( LTD) ($48.83) traded to an all time high at $51.84 on May 3. My semiannual value level is $40.46 with a monthly pivot at $48.43 and a quarterly risky level at $53.65.

Sherwin Williams ($142.63) traded to an all-time high at $142.63 on Friday. My semiannual value level is $124.28, my weekly pivot is at $141.70 and my monthly risky level is at $146.41.

TJX Companies ( TJX) $45.87) traded to an all-time high at $46.17 on Aug. 22. My quarterly value level is at $41.64, my annual pivot is at $45.75, and my monthly and annual risky levels are at $48.83 and $52.67, respectively.

Wal-Mart Stores ($72.11) traded to an all-time high at $75.24 on July 30. My quarterly value level is $68.58, my monthly pivot is at $71.04 and my weekly risky level is at $76.37.

Back on June 26 I included "buy and trade" strategies for FDO and TJX in an article titled Retail Bubble Stocks Are Vulnerable.

Note that FDO could have been sold at my second-quarter risky level at $67.95 before the end of June, and that TJX could have been sold last week at my annual pivot at $45.75.

At the time of publication, Suttmeier held no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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