Consumer stocks have been on a wild tear higher since the market hit bottom back in March.
The XLY S&P 500 Consumer Discretionary Sector SPDR has risen more than 72% since the market bottom on March 23, outpacing the broader S&P 500’s 48% gain in the same timeframe.
But while you may think e-commerce names have been the ones to drive the sector as a whole far higher, there are a handful of other consumer stocks that have delivered jaw-dropping gains.
Stealthy consumer stocks like Whirlpool (NYSE: WHR), auto parts retailer LKQ Corp (NASDAQ: LKQ), wholesale pool supplies and construction company Pool Corp (NASDAQ: POOL), and farm retailer Tractor Supply (NASDAQ: TSCO) have surged higher almost unnoticed.
Tractor Supply has gained 78% since the March bottom, Pool has risen 125%, LKQ has added 138%, and Whirlpool has jumped 191% higher.
Piper Sandler chief market technician Craig Johnson said last Friday that the outperformance in some of these under-the-radar names is due to how 2020 has influenced consumers’ shopping choices.
“We’ve got the pandemic that has obviously been leading to people making some different choices in terms of where they live,” Johnson said. “So they’re moving out of the city, they’re moving into homes, they’re making a lot of changes, so you’re seeing anything sort of housing-related doing well and picking up in terms of performance and then couple that together with low interest rates…”
But while these stocks have delivered incredible gains over the last several months, Johnson says that not all will continue to climb higher.
“If you take a look first at a company like Tractor Supply,” Johnson said, “this is a stock that looks like it’s sort of making a bit of a double top in here, and any sort of break below $136 we’ve got to be a little bit more cautious on and perhaps look to be taking some money off the table on that.”
Looking at the chart above, TSCO has formed a double top, wherein the stock’s price has hit two consecutive highs with a moderate decline between the two peaks. With the price falling below that intermediate low, the double top has been confirmed and Tractor Supply shares closed at $133 on Thursday, confirming Johnson’s bearish call.
One alternative to Tractor Supply Johnson is bullish on is Stanley Black & Decker (NYSE: SWK), a stock he says should get a boost from consumer tailwinds and a strong technical foundation.
“The stock is up about 150% off the lows,” Johnson said. “You got earnings coming out [this] week, and you’re just starting to break out to new highs. I’d be buying this sort of stealth move in here.”
Stanley Black & Decker posted earnings on Tuesday, reporting per share earnings of $2.89, beating analysts’ estimates for $2.73 per share. However, the company missed on revenue and said shipments in its tools and storage segment were shifted into the current quarter from September, putting pressure on the stock this week and a buying opportunity.
Laffer Tangler Investments’ Nancy Tengler has her eye on four other stocks in the consumer sector.
“We’ve been overweight consumer discretionary pre-COVID, and then we kind of doubled down after the March lows and added,” Tengler, the firm’s chief investment officer, said. “We had a housing emphasis, but we added names like Target (NYSE: TGT) and Chipotle (NYSE: CMG), Ulta Beauty (NASDAQ: ULTA) and some of the other sort of broader names like Walmart (NYSE: WMT), even though that’s a consumer staple.”
Of these, Jefferies analyst Stephanie Wissink rates Walmart a Buy and issued a $165 price target on the big-box retailer last week, implying 18% upside from current prices.
The Jefferies analyst argues that Walmart should benefit from changing consumer shopping habits amid the coronavirus pandemic as consumers continue to prioritize essentials, using omnichannel options, and plan to continue shopping online. Walmart’s massive store base and its subscription service Walmart+, which includes grocery delivery, rises to meet these trends, Wissink argues.
Wissink also noted that recent consumer surveys show that Walmart has earned goodwill for its handling of the coronavirus outbreak, naming it “as a top 3 retailer for how well it has responded to the pandemic.”
Another winner in the bunch is Ulta, which Cowen analyst Oliver Chen rates an Outperform. Chen recently boosted his price target on the stock to $270—31% higher than the price as of this writing—calling the company “a specialty beauty long-term champion” given its solid customer engagement and controlled promotions.
As for if the consumer sector will continue to be a winner, Tengler added, “I think these trends are sustainable. You can thank low interest rates, lower energy costs and muted inflation so the consumer now has free cash flow at [an] historic high.”