Two Big-Cap Retailers Break Away

 | Nov 15, 2012 | 11:30 AM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

gps

,

lux

The market meltdown, along with some disappointing earnings reports, dragged down a number of large-cap retail-sector names. In addition, many former leaders have fallen from grace.

Ross Stores (ROST), which had a solid yearlong rally, has essentially been in free-fall since topping out at $70.82 on Aug. 20. Whole Foods (WFMI), another stock with a lengthy track of price growth, is down 7.1% this month and sliced its 200-day line in above-average volume Wednesday.

There is some clear divergence taking shape between various sub-sectors. Among DJIA components, Home Depot (HD) rallied to a multiyear high this week, while McDonald's (MCD) is down 15.7% year-to-date, closing at $84.62 Friday.

But Home Depot is not the only big-cap retail name outpacing the benchmark index by a wide margin. For example, rival Lowe's (LOW) rallied to a multiyear high earlier this month and is not holding between its 10-week line and a prior peak of $33.63.

I was scanning my list of the technical leaders among the big-cap retailers, and it struck me that apparel and accessory companies were well represented. Gap (GPS) delivers third-quarter results after the close Thursday. Heading into that report, the stock was up more than 81% year-to-date; however, it's been pulling back since September -- not surprising after a gain of 21.5% in August following its second-quarter report. Shares closed Wednesday at $33.63, 6% below its 50-day line but 14% above its 200-day average.

This is a turnaround in the earnings department; these situations often result in significant price gains, as well. The return on equity is strong at 24%; however, free cash flow per share has declined in each of the past two years. When the company reports later today, analysts expect earnings to come in at $0.63 per share on revenue of $3.82 billion. Those would be gains over the year-ago quarter.

Another large-cap retailer whose chart remains strong is sunglass-market dominator Luxottica (LUX). The fiscal cliff and European debt crisis don't matter -- people want to protect their peepers and look stylish doing it. For a large-cap, Luxottica has a rather high beta of 1.22. A glance at Luxottica's daily chart, however, shows a phenomenon that's not uncommon for American Depositary Receipts: an unusual number of intraday gaps higher and lower. These are due to currency exchange rates. That contributes to a somewhat high beta on many ADRs, even though the given stock appears to trade smoothly on a weekly chart. In any case, the stock has been trending nicely along its 10-week average, and is showing a year-to-date gain of 34%. Analysts see earnings growing 12% this year, to $1.54 per share. In 2013, that's expected to rise another 18%, to $1.78 per share.

Though the company has been steadily profitable in recent years, earnings growth is somewhat erratic, vacillating between double-digit and low-single-digit year-over-year increases. As with Gap, not all of the financial ratios are as bullish as I'd like to see. Return on equity is a bit on the low side, at 14%, and the free cash flow per share declined in each of the past two years.

Columnist Conversations

CHECK IT OUT HERE Lot's of great out and underperformer picks, as well as M&A ideas that you don't always ...
The major market indices continue to move within the parameters of the Fibonacci retracement levels measured o...
Since we cleared a key decision on the way up, I want to watch this pullback for an entry if it fires off a bu...
Conclusion DDD is down today on new that the firm has cut revenue forecast due to production issues. The issue...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.