The resurgence in retail stocks has been fascinating to watch. Names that were left for dead when the pandemic reared its ugly head last March have been putting on quite a show recently. Department store stocks such as Kohl's (KSS) (up 22.5% year to date), Macy's (M) (up 36%) and Dillard's (DDS) (up 24%) have recovered to near or above where they were trading at this time last year. Given the amount of time they were closed, this is a minor miracle.
Sporting goods retailers such as Dick's Sporting Goods (DKS) (up 37% year to date), Hibbett Sports (HIBB) (up 31%) and Big 5 Sporting Goods (BGFV) (up 52%) had a much different experience as they had somewhat brief pullbacks last March, then took off. DKS is up 77% over the past year and is by far the laggard of the three over that time frame. Demand for nearly anything sports that could take our minds off the pandemic no doubt bolstered these names, as did their online business.
Of course, the names I am most interested in are those that are a bit off the beaten path, with little or no analyst coverage. The path of those stocks is all over the map, which makes it all the more intriguing.
For instance, Fossil Group (FOSL) (up 87% year to date) already was all but left for dead at the outset of the pandemic. Over the past year, its shares have soared 144%. Recently, Fossil has been peripherally associated with the run-up in highly shorted stocks such as GameStop (GME) , which is likely what pushed FOSL shares above $28 intraday on Jan. 27. That move, and the association with highly shorted stocks, did not make much sense to me as the short interest in Fossil has not been very high recently. I likely would have sold it on Jan. 27, a Black Swan day for the company, but my hands were tied due to $15 March call options I'd literally written the day before; talk about timing!
Fashion retailer CATO Corp. (CATO) (up 28% year to date) saw its shares plunge more than 62% from March and November amid four consecutive quarterly losses and the elimination of its hefty, 33-cent quarterly dividend. I rediscovered CATO in December, along with its $6.63 per share in net cash and its real estate holdings. No analyst coverage here, however, as no one is weighing in on when a return to profitability might occur.
The obvious question is why the run-up in retail, especially the more challenged names, in the more competitive areas such as fashion. I believe it's a combination of two factors. First, the belief or hope that fourth-quarter numbers will be good, that it was a solid holiday retail season despite the pandemic. Second is the belief that Uncle Sam will continue to put money in the pockets of consumers via massive amounts of stimulus. Both, however, are short-term events, which renders the sector as one to trade, not buy and hold, especially the more challenged names.
