Retail Bubble Stocks Play On Earnings Momentum

NEW YORK ( TheStreet) -- It is very unusual for retail stocks to be a play on momentum, but that's what has happened this year to a dozen retailers that I describe as bubble stocks.

Nine are in the retail-wholesale sector which is 7.2% overvalued according to www.ValuEngine.com. Two are in the consumer staples sector which is the most overvalued sector by 13.9%. These 12 stocks are in consumer discretionary which is 2.8% undervalued.

On Oct. 17 I wrote Analyzing the Retail Stock Bubble and since then there have been two downgrades. One set a new all-time high on Wednesday and another, the archrival of the other, is set for a new multi-year high today. This second one is the only retailer in the dozen that is still shy of its all-time high.

Four stocks are overvalued, six have trailing 12 month price-to-earnings ratios above 20.0, nine have gains of more than 25% over the last twelve months, but none are projected to match these past gains over the next 12 months.

Ten of the twelve retailers are above their 200-day simple moving averages.

The Conference Board's reading on consumer confidence rose to 73.7 in November was the highest reading since February 2008, but keep in mind that this is well below the neutral zone of 90 to 110 for this measure.

Chart Courtesy of dshort -- Advisor Perspectives

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. 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 twelve months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next twelve months. Stocks with a black number in the table are projected to move higher by that percentage over the next twelve months.

Value Level: The price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC limit order to sell on strength.

Amazon.com ( AMZN) ($247.11 vs. $243.94 on Oct. 17): Set an all-time high at $264.11 on Sept. 14. Amazon was downgraded to hold from buy this week, but its weekly chart shifts to positive on a close this week above the five-week modified moving average at $239.28. The stock's 200-day simple moving average provided a buying opportunity at $219.57 on Nov. 15. My semiannual pivot at $236.25 is my value level with a quarterly risky level at $263.71.

Costco Wholesale ( COST) ($102.58 vs. $97.00 on Oct. 17): Set an all-time high at $104.43 on Oct. 10 in reacting to its earnings report. The weekly chart shifts to positive on a close this week above the five-week MMA at $98.17. My weekly value level is $94.10 with a monthly pivot at $103.15 and quarterly risky level at $108.47.

Dollar General ( DG) ($49.58 vs. $50.29 on Oct. 17): Set an all-time high at $56.04 on July 7. The weekly chart shifts to positive on a weekly close above its five-week MMA at $49.06. My weekly value level is $45.80 with my semiannual risky level at $53.23.

Dollar Tree ( DLTR) ($41.42 vs. $40.52 on Oct. 17): Set an all-time high at $56.81 on June 20 and is below its 200-day SMA at $47.84. The weekly chart shifts to positive on a close this week above the five-week MMA at $41.66. My weekly value level is $33.57 with a semiannual pivot at $43.02 and semiannual risky level at $50.29.

Family Dollar ( FDO) ($69.01 vs. $68.52 on Oct. 17): Set an all-time high at $74.73 on June 14. The weekly chart has been positive since the week of Nov. 2 with the five-week MMA at $67.27. My semiannual value level is $62.16 with a weekly pivot at $68.21 and semiannual risky level at $71.79.

Home Depot ( HD) ($64.83 vs. $60.86 on Oct. 17): Will likely set a new multi-year high today with its all time high of $70.00, set in April 2000. The weekly chart remains in bubble territory with overbought Mojo and the five-week MMA at $62.11. My quarterly value level is $58.83 with a weekly pivot at $63.95 with no risky level as Mojo continues.

Lowes Companies ( LOW) ($35.77 vs. $32.35 on Oct. 17): Set a new all-time high at $35.78 yesterday. The weekly chart remains in bubble territory with overbought Mojo and the five-week MMA at $32.82. My quarterly value level is $31.01 with an annual pivot at $34.45 and no risky level.

Monster Beverage ( MNST) ($51.36 vs. $58.42 on Oct. 17): Set an all-time high at $83.96 on April 30, and the stock is below its 200-day SMA at $61.21. The weekly chart shifts to positive on a close this week above its five-week MMA at $49.62. My weekly value level is $43.70 with a semiannual risky level at 58.04.

Constellation Brands ( STZ) ($35.36 vs. $35.78 on Oct. 17): Set an all-time high at $36.50 on Oct. 8. The weekly chart is neutral with declining Mojo and the five-week MMA at $34.75. My annual value level is $31.07 with a monthly pivot at $34.99 and weekly risky level at $38.31.

TJX Companies ( TJX) ($44.04 vs. $43.10 on Oct. 17): Set and all-time high at $46.67 on Aug 29. The weekly chart shifted to positive a week ago with the five-week MMA at $43.11. My weekly value level is $40.55 with a quarterly pivot at $45.64 and annual risky level at $45.75.

Under Armour ( UA) ($54.74 vs. $58.08 on Oct. 17): Set an all-time high at $60.96 on Sept. 14. The stock's 200-day simple moving average provided a buying opportunity at $50.33 on Nov. 8. The weekly chart shifts to positive on a close this week above the five-week MMA at $53.55. My weekly value level is $50.91 with a monthly risky level at $59.06.

Wal-Mart Stores ( WMT) ($70.56 vs. $76.91 on Oct. 17): Set an all-time high at $77.60 on Oct. 16. The weekly is negative with declining Mojo with the stock below its five-week MMA at $71.83. My quarterly value level is $68.55 with a weekly risky level at $71.80.

At the time of publication the author held no positions in any of the 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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