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Traders Say These 2 Stocks Look Poised To Rally In The Fourth Quarter

Traders Say These 2 Stocks Look Poised To Rally In The Fourth Quarter

After slumping in September, there’s a buying opportunity in these 2 stocks before they rally higher.

September was a rough month for semiconductor Advanced Micro Devices (NASDAQ: AMD) and athletic apparel maker Lululemon (NASDAQ: LULU), with AMD falling -11% last month and Lululemon shares sinking nearly -16%.

But one trader says both stocks are looking primed for a rebound.

Todd Gordon, founder of TradingAnalysis.com, sees strong demand where AMD is concerned and solid technicals laying the groundwork for a break higher.



“We are looking ahead to these new next-gen Zen 3-based CPUs. … Everyone is very much looking forward to this in the tech community,” Gordon said. “Analysts were expecting sales to cool ahead of those new chips, but the customers continue to purchase the AMD chips even ahead of the new launch.”

Gordon argues that AMD’s market share is set to expand as the company encroaches on Intel’s  (NASDAQ: INTC) share of the chip space, and as demand rises for PCs and chips amid the work-from-home environment.

“AMD is expected to report earnings on Oct. 27. Right now, they have a trailing PE of about 160 which is quite expensive,” Gordon said. “But, keep this in mind, they’re expected to increase their earnings per share by about 72% from last year to this year, and they’re still expected to grow another 51% next year. The company is only trading 45 time forward earnings with a 50% increase in earnings per share so I continue to be bullish here.”



While some could consider AMD’s weakness in September as a warning signal, Gordon says it’s a buying opportunity noting the stock’s pullback to the mid-$70s matches up with the 50-day moving average which should act as support.

Source: TradingView.

“I own the stock, I would consider adding to the stock,” Gordon added. “I hold about 3.5% AMD position in my portfolio which is quite large, but I wouldn’t mind picking that up to 4-4.5%.”



As for Lululemon shares, Gordon argues that strong demand for the company’s athleisure wear should help the stock capture upside momentum.

“Lulu is well positioned to benefit from the work-from-home, stay-at-home environment,” Gordon said. “Comfort clothes are really, I think, second to none… But I also think they’ll benefit if and when the work-from-home, stay-at-home environment ends, because gyms and yoga classes will open back up and the demand will stay strong.”

According to Gordon, Lululemon boasts strengths in three important areas: e-commerce, international expansion, and its recent acquisition of Mirror, an augmented reality fitness company that competes with Peloton (NASDAQ: PTON). 



Lululemon reported online sales jumped 157% in its most recent quarter as shoppers stocked up on workout apparel amid the coronavirus pandemic, and Gordon believes the Mirror acquisition should help drive sales for Lulu’s workout clothes.

“They’re looking to grow at a compound rate of 40% per year in China and… their e-commerce is also a big focus, their margins are a lot better on the e-commerce side compare to their in-store sales,” Gordon added. 

Gordon isn’t the only one bullish on Lululemon shares. Last week, Bank of America analyst Lorraine Hutchinson issued a Buy rating for the stock with a $390 price target – 15% higher than the price as of this writing. 

Hutchinson wrote in a note to client that she sees Lululemon as “one of the best growth stories in retail,” adding that she expects “the brand to be a winner in a COVID and post-COVID environment.”



While Lululemon’s $98 leggings might seem like a stretch for most shoppers amid a shaky economy, Hutchinson argues that the company’s products’ “functionality, aesthetic and durability [have] reinforced its higher prices.”

Hutchinson is also optimistic about Lululemon’s growing men’s business and burgeoning international expansion.

“International was profitable in 2019, but should significantly improve as Europe earns money in 2021 and other regions benefit from increased scale,” Hutchinson wrote. 


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