The retail sector has been hit hard amid the coronavirus induced nationwide shutdowns.
Between February 20 and the beginning of April, the XRT S&P Retail ETF plunged -41% as stores were compelled to close their doors to help stem the spread of the deadly virus.
But while the sector had one of its best months ever in April, with the XRT rising nearly 31% in the month as hopes for an economic reopening spurred optimism for the group, BTIG analysts said in a note this week that the current state of retail is “survival of the fittest,” with only a handful of stocks worth investing in now.
BTIG analyst Camilo Lyon wrote in the note that “the brands that were strong entering this downturn will emerge from it stronger, while those that were weak will have compounded challenges to overcome.”
Lyon wrote that he favors retail names that have ample liquidity, and robust and flexible supply chains, and recommends product themes and categories that are currently working, including home, comfort, and athletic apparel.
Michael Bapis, managing director of Vios Advisors at Rockefeller Capital Management, agrees that BTIG’s retail picks have the potential to survive through the coronavirus induced economic slowdown.
According to Bapis, athleisure wear from brands like Nike and Lululemon will only become more “acceptable” in everyday life with millions of Americans now working and learning from home.
“We’re looking at companies that have powerful balance sheets,” Bapis said. “Cash is going to be king right now, and it depends on the ability to distribute online, the ability to get online orders filled and get them shipped.”
“The at-home fitness craze is taking over, so you have to wear something when you’re doing that,” Bapis added. “So, I just think it’s going to come down to balance sheet and ability to weather this storm long term. And you’re also looking at a retail space where there’s not going to be, [for] at least six, nine, 12 months, the in-store experience, and sales are going to be much, much lower.”
Miller Tabak chief market strategist Matt Maley said one stock on BTIG’s list stands out: Nike.
“The less-risky stock is Nike,” Maley said. “It’s bounced back obviously very strongly, but it stalled out a little bit earlier than some of the others.”
“It got right up to its 200-day moving average, pulled back in early May, got back up to it again a couple of weeks ago, but hasn’t been able to break above it,” Maley continued. “Once it can break above that line, that’s going to give the stock a lot of momentum on a technical basis, so, that’s really a good one.”