‘Sell in May and go away.’ It’s one of those old adages whose origins are a little obscure – but which remains surprisingly applicable. It refers to the historical underperformance of the markets during the six months from May to October, when compared to November to April. The exact reasons are debatable, but according to Forbes magazine, between 1950 and 2013 the Dow showed an average return of only 0.3% during the spring/summer months – compared to 7.5% during the fall and winter.
This year, there is some speculation that summer underperformance may be worse than usual. The S&P 500 rose 28% between last November and April, outpacing the historical gains. Will the spring losses do the same?
We just don’t know. What we do know, is that the market rally was fueled, at least in part, by the economies reopening, people getting back to work, and consumers starting to spend again, after the disruptions of the corona crisis. That process is well begun – but it’s still in the early stages. So, given that consumer activity drives the US economy – let’s look at some retail stocks to get an idea where they’re headed.
We’ve used the TipRanks platform to find three that carry Strong Buy consensus ratings. Moreover, certain Wall Street analysts think gains of at least 30% are in store for these names over the next 12 months. Here are the details.
Lululemon Athletica, Inc. (LULU)
First on our list, Lululemon, is a purveyor of athletic wear, which has historically targeted mainly upscale women and is well known for its smart use of social media. The company has been working to expand market share by adapting its product line for more appeal to men.
A look at Lululemon’s quarterly financial releases shows a clear pattern, not uncommon among retailers: the company’s weakest performance comes in Q1, and performance rises steadily through Q4. The year 2020 shows a partial departure from the pattern; Q1 was weakest, and underperformed year-over-year. Since then, however, LULU has shown year-over-year revenue gains in each successive quarter.
The most recent release, for 4Q20, showed $1.73 billion in revenue, up 23% year-over-year. The gain was driven by a 47% increase in international revenue. EPS came in at $2.52, the highest quarterly earnings of the year, and up 10.5% from 4Q19. The company finished 2020 with 521 stores, a net gain of 30.
In his overage of the stock for BTIG, analyst Camilo Lyon writes, “As we look to F21, LULU is accelerating all aspects of its growth drivers in an effort to drive further market share gains…. we believe the long term opportunity for LULU to serve both the at-home and outdoor fitness consumer places it at the center of the active lifestyle secular trend…. We believe LULU is among the few companies that entered the current environment from a position of strength and as such, will exit it stronger.”
Lyon rates the stock as a Buy, and his $434 price target indicates an upside of 36% for the coming year. (To watch Lyon’s track record, click here.)
Overall, it’s clear that Wall Street likes Lululemon. Of the 15 recent share reviews, 12 are to Buy against just 3 Holds, giving LULU a Strong Buy consensus rating. The stock sells for 319.22, and its $398.60 average price target suggests a one-year upside of 25%. (See Lululemon’s stock analysis at TipRanks.)
Ollie’s Bargain Outlet Holding (OLLI)
The COVID pandemic slammed brick-and-mortar retail – but some segments found themselves uniquely suited to the crisis. Big chain discount retailers, offering wide ranges of home wares, toys, hardware, cleaning supplies, groceries, bed and bath supplies, and all at a low price, have done well. This is the niche that Ollie’s inhabits. The chain has 496 stores across the country.
Ollie’s consistently outperformed on revenues and earnings during the pandemic year, when consumers, looking to save money, turned to discount retailers. The company has showed year-over-year gains in each quarter of 2020; for Q4, the most recent reported, the top line came in at $515.8 million, up 22% yoy. EPS, at 98 cents, was up from 77 cents the year before; a gain of 27%. Management reported that 2020 full year results, despite the pandemic, were the best in the company’s history.
Three additional metrics will show the strength of Ollie’s position. First, comp store sales grew over 15% in 2020 as a whole. Second, the chain opened 46 new stores during the year. And finally, Ollie’s has a strong balance sheet, with over $447 million cash available, and negligible debt – total borrowings for 2020 were reported at just $1 million.
5-star analyst Randal Konik, of Jefferies, sees Ollie’s as well-positioned in a tough niche, writing, “We believe OLLI has ample runway for store growth ahead in both new and existing markets. Strong and growing brand awareness, coupled with a healthy buying environment following significant retail dislocation, positions OLLI well to continue gaining share.”
Looking at the balance sheet, Konik is deeply impressed: “Cash is near $450M with little to no debt. This puts OLLI in an enviable position, and we like that the company is putting that strong cash position and strong cash flow to work with an increase to share repo program.”
In line with these comments, Konik rates OLLI as a Buy, and his $125 price target suggests it has room for 43% growth this year. (To watch Konik’s track record click here.)
The Wall Street reviews on OLLI break down 6 to 2 in favor of Buys versus Hold, for a Strong Buy consensus rating. The stock is selling for $87.19, with an average price target at $106.38 to imply an upside of 22%. (See Ollie’s stock analysis at TipRanks.)
Nike, Inc. (NKE)
The last stock we’re looking at, Nike, needs no introduction. The iconic brand has managed to successfully work itself into our collective consciousness, to the point that its swoosh logo no longer needs the company name. It’s legendary branding, at its best.
Looking at the company’s latest quarterly statement, Nike reported $10.4 billion in total revenue for its Q3, fiscal year 2021. This was up a mere 3% year-over-year, a minor gain for such a large company. Nike reported a 10% decline in North American revenue, mainly due to supply chain disruptions – a shortage of shipping containers in the global markets, and heavy congestion at the US West Coast ports have harmed inventory flow and wholesale shipments. The North American losses were balanced by an impressive 51% revenue gain in the Chinese market. Nike’s overall earnings rose in the recent quarter. EPS came in at 90 cents, up 69% year-over-year.
JPMorgan’s 5-star analyst Matthew Boss likes Nike, both its market position and its forward prospects. He writes, summing up the company’s potential for investors, “We see NKE’s brand momentum across geographies as sustainable and providing insulation to macro volatility and supporting sustainable multi-year high-single-digit top-line growth. We view this, combined with continued gross margin expansion (increased fully price selling, favorable DTC mix), driving sustainable multi-year mid-teens EPS growth.”
Boss gives NKE shares an Overweight (i.e., Buy) rating, along with a $176 price target that implies an upside of 32% for the next 12 months. (To watch Boss’s track record, click here.)
Nike is another stock with a Strong Buy consensus rating, this one based on 18 analyst reviews. These include 15 to Buy, 2 to Hold, and a single Sell. The average price target, of $165.35, suggests a 24% one-year upside from the $132.94 current trading price. (See Nike’s stock analysis at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.