Stocks have have been on a wild ride over the last month, with as many up days as down.
Since hitting a fresh record high on September 2, the S&P 500 has been stuck in a volatile sideways trading range. But with the index still just -3.5% below its all-time high, many stocks are still trading at nosebleed valuations.
But according to two traders, there are bargains to be had.
Miller Tabak chief market strategist Matt Maley said this week that he’s cautiously positive on one retail name: Coach, Kate Spade, and Stuart Weitzman parent Tapestry (NYSE: TPR).
Shares of the luxury brand house are up nearly 12% over the last week, and more than 33% over the last month. However, the stock is still down -19% year-to-date amid a dent in demand due to the coronavirus pandemic.
Maley said he was concerned about the possibility of more layoffs from Tapestry, he also noted that the stock “looks quite compelling” on a technical basis and is setting up for a potential bounce.
“The stock has already broken two key resistance levels and it’s now testing a third,” Maley said. “The first [is] the 200-day moving average and the second one is a double-top high from both June and August, and it’s broken nicely above that. That was at about $18.”
Since Maley’s comments, Tapestry shares have also broken above a two-year trend line from 2018 as seen in the chart above. Maley said if the stock were to break above that third resistance, it would “confirm the breakout in the stock after a pretty serious slide, it’s going to attract a lot of that momentum money that has become so prevalent in the marketplace. I’d just note, too, that the stock has only retraced about a third of its sell-off. That’s a lot less than a lot of other stocks in the market.”
Maley isn’t the only one on Wall Street that likes Tapestry. Earlier this month, Deutsche Bank analyst Paul Trussell reiterated his Buy rating on the stock, and boosted his price target to $21.
Trussell argues that consumers are utilizing “reallocated entertainment and travel dollars to purchase the latest fashions.” Moreover, Trussell likes that the company is running fewer promotions at Coach, and believes that brand—as well as Tapestry’s overall business—should benefit from a high level of direct-to-consumer sales.
Of AT&T, Petrides said, “the idea is you’re getting over a 7% dividend yield for a company that generated a tremendous amount of cash flow and is paying down debts following the Time Warner transaction a couple of years ago.”
While Time Warner’s delayed slate of movies amid the pandemic has been an issue for AT&T of late, Petrides says the 5G rollout will be another “cash cow” for the company.
“With the new iPhone being released, that should add some movement upward to the mobile side of the coin for AT&T, which I think is positive for the story,” Petrides added. “And… in an environment where interest rates are zero and investors are scrounging for places for income, we don’t think you’re paying much from a valuation standpoint for AT&T’s yield, which we feel pretty confident in.”
As for Lennar, Petrides sees several catalysts driving the company’s business, including the ongoing trend in the housing market of buyers fleeing urban areas and flocking to the suburbs.
“Lennar is one of the quality lower-cost producers in the housing market,” Petrides said. “Just as it’s been a benefit for AT&T in terms of looking for yield, low interest rates have been a benefit for homebuyers. And as the economy recovers, with low interest rates and the movement out of the city, we think the housing market has the wind at its back and I think Lennar is attractive here.”