Discount Retailers Holding Up Despite Weak Consumer Confidence

TheStreet.com

NEW YORK (TheStreet) -- The retail-wholesale sector may be 26% overvalued according to www.ValuEngine.com but maintains an overweight sector rating with 80.9% of the 345 stocks sporting buy ratings. These stocks have been holding up well despite weakening consumer confidence.

In addition to covering the discount retailers my Oct. 1 post, Discount Retailers Should Hold Up in a Risky Market I also set the stage for the conditions that would lead to a new set of highs for the five key equity averages. The Nasdaq ended the first week of October above my semiannual pivot at 3759, which was my scenario to look for a new set of market highs.

The Dow Industrial Average set a new all-time intra-day high at 15,797.68 on Nov. 7. The S&P 500 set its all-time intra-day high at 1775.22 on Oct. 30. The Nasdaq set its multi-year intra-day high at 3966.71 on Oct. 30. The Dow transportation average set its intra-day all-time high at 7131.80 on Nov. 4. The Russell 2000 set its intra-day all-time high at 1123.26 on Oct. 30.

All nine discount retailers continue to have buy ratings and all are overvalued. Four are overvalued by 17.9% to 27.2%. Six have gained between 24.2% and 56.0% over the last 12 months. One is below its 200-day simple moving average, one is just above it, and seven are above their 200-day SMAs reflecting the risk of a reversion to the mean.

Reading the Table

OV/UN Valued: 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 12 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 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: 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: Price at which to enter a GTC limit order to sell on strength.

Big Lots ($36.88 vs. $37.09 on Sept. 30) is down 0.6% since my Oct. 1 post and stayed above its 200-day SMA at $35.29 on Friday. My quarterly pivot is $36.41 with a monthly risky level at $37.51.

Costco ($123.02 vs. $115.17 on Sept. 30) is up a solid 6.8% since my Oct. 1 post and set a new multi-year high at $124.74 on Thursday. My weekly value level is $119.25 with a quarterly pivot at $121.21 and monthly risky level at $124.31, which was tested at the high.

Dollar General ($58.01 vs. $56.46 on Sept. 30) is up 2.7% since my Oct. 1 post, and moved back above its 50-day SMA at $57.69 on Monday. The multi-year high was set at $59.87 on Oct. 25. My semiannual value level is $56.50 with a semiannual pivot at $56.97 and monthly risky level at $59.07.

Dollar Tree ($59.06 vs. $57.16 on Sept. 30) is up 3.3% since my Oct. 1 post and is above its 50-day SMA at $57.51 after setting a new multi-year high at $60.19 on Oct. 22. My semiannual value level is $52.56 with a monthly risky level at $60.41.

Family Dollar ($68.54 vs. $72.02 on Sept. 30) is the biggest loser down 4.8% since my Oct. 1 post. The stock has been below its 50-day SMA at $70.88 since Oct. 7 but is above its 200-day SMA at $64.93. My annual value level is $49.09 with a weekly pivot at $68.32 and semiannual risky level at $73.03, which failed to hold after the stock set a multi-year high at $75.29 on Sept. 19.

Ross Stores ($78.50 vs. $72.80 on Sept. 30) is up a solid 7.8% since my Oct. 1 post and set a new multi-year high at $79.06 on Nov. 5. My annual value level is $54.56 with a semiannual pivot at $79.86 and semiannual risky level at $82.91.

Target ($65.69 vs. $63.98 on Sept. 30) is up 2.7% since my Oct. 1 post with the stock above its 50-day SMA at $64.12 and is the only stock in today's table below its 200-day SMA at $67.26. My annual value level is $53.54 with an annual pivot at $65.45 and semiannual risky level at $72.47, which failed to hold following the stock's multi-year high at $73.50 set on July 24.

TJX Companies ($61.69 vs. $56.39 on Sept. 30) is the biggest gainer since my Oct. 1 post up 9.4% since then and set a new multi-year high at $62.24 on Thursday. My annual value level is $52.67 with a monthly pivot at $61.46 and weekly risky level at $62.73.

Wal-Mart Stores ($79.01 vs. $73.96 on Sept. 30) is up a solid 6.8% since my Oct. 1 post. My semiannual value level is $74.96 with a weekly pivot at $77.33 and monthly risky level at $80.39.

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.

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