Recovery hopes have reignited the retail trade.
High-end and specialty retail stocks including Ulta Beauty, PVH and Levi Strauss are on the rise this week following word of a 90% effective Covid-19 vaccine that rekindled hopes of a sooner-than-anticipated economic recovery.
Ulta has gained nearly 23.5% this week. PVH has jumped more than 21.5%, Guess is up almost 14%, Levi is more than 11% higher and Coach parent Tapestry has gained about 7%.
But “playing the apparel wars game is tricky,” Strategic Wealth Partners CEO Mark Tepper told CNBC’s “Trading Nation” on Tuesday.
“It’s really tough to figure out whether people want to dress back up again,” he said. “It looks more like a brick-and-mortar revival trade to me. Will a vaccine cause a mad rush of people to go to the mall? I don’t think so. I mean, foot traffic was dying before Covid. I find it next to impossible to believe that this causes it to slingshot back.”
Instead, Tepper suggested investors focus on growing brands with robust online platforms and strong direct-to-consumer pipelines.
“The only apparel company we currently own is VF Corp.,” a “relative value play” that trades at a roughly 20% discount to industry peers, Tepper said.
The parent company of “outdoorsy” brands North Face and Timberland, VF Corp. is both a good play on the winter season and on its recent acquisition of streetwear band Supreme, Tepper said.
“This company absolutely blows my mind,” he said of Supreme. “They literally take a North Face coat that’s a few hundred bucks, they slap their logo on it and they turn around and they sell it for 900 bucks. I mean, that is pricing power.”
The one stock Tepper has his eye on as a potential buy is Lululemon Athletica.
“I love this stock, but it’s always been an elusive stock for me, always just a little out of my reach, a little too expensive,” he said. “What I’m actually really hoping for here is that this back-to-work trade … has a little bit of runway so that Lulu drops another 10% and I can finally buy it. I think you need to look at some of those names that have been out of your reach before and see if you can grab them.”
Todd Gordon, founder of TradingAnalysis.com, said in the same interview that while he cut all of his Lululemon exposure on Tuesday given the stock’s valuation, another stock looked increasingly attractive.
“The one I like in here is Ulta. I like that partnership with Target,” Gordon said. “They have this new shop-in-shop concept. They’re going to be featured in select locations within the existing beauty section of Target, plus they’re going to be featured online.”
Better yet, Ulta’s technical picture also seems bright, Gordon said.
“On the monthly chart, you could argue that there’s sort of a head-and-shoulders [pattern] beginning in 2017 to now,” he said.
“Then as you get smaller, down to the weekly, a confirmed break and a successful hold of about 260 will make that a failed head and shoulders, which is actually a strong continuation pattern,” Gordon said. “Ulta’s currently trading with a 53 [price-to-earnings multiple] right now, but only 19 times forward earnings.”
Ulta shares closed up more than 7% on Tuesday at $265.49, the day the partnership with Target was announced.
Disclosure: Strategic Wealth Partners owns shares of VF Corp.
