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Traders Say These 2 Under-The-Radar Retail Stocks Look Poised For Big Upside

Traders Say These 2 Under-The-Radar Retail Stocks Look Poised For Big Upside

Consumer spending is surging and these 2 stocks under-the-radar stocks might be the best way to play it.

Vaccine distribution, a recovering jobs market, and a fresh batch of stimulus checks led to a surge in consumer spending in March.

The Commerce Department reported last week that advanced retail sales rose 9.8% for the month, beating economists’ estimates for 6.1%, with sporting goods, clothing, and food and beverage leading the gains in spending. And the growth is likely to continue.

“With the vaccination rollout proceeding at a rapid pace and households finances in strong shape, we expect overall consumption growth to continue rebounding rapidly in the second quarter too,” said Capital Economics senior U.S. economist Michael Pearce. 

But while the Amazons (NASDAQ: AMZN), Targets (NYSE: TGT), and Walmarts (NYSE: WMT) are certainly repeating the rewards of the surge in consumer spending, they aren’t the only retailers that stand to benefit from the uptick.

“We are looking at pent-up demand meets unsold inventory and that leads us to the liquidators,” said Chantico Global CEO and Lido Advisors chief market strategist Gina Sanchez, adding that while names like Ross Stores (NASDAQ: ROST) and TJ Maxx-parent TJX Companies (NYSE: TJX) have traded well during the pandemic with strong growth, they’re looking overvalued now.

Still, there’s one retailer in the “liquidators” space that still offers “growth at a reasonable price,” Sanchez said.

“Big Lots (NYSE: BIG) is an interesting name,” Sanchez said. “They had actually very strong revenue growth last year. Their expectations are still extremely strong, but they’re trading at 11.5 times forward earnings relative to an industry average of 30 times, so we think this is an interesting opportunity.”

Big Lots shares are up more than 52% so far this year. However, the stock is down 9% since hitting its all-time high last month, giving investors an opportunity.

Piper Sandler’s Craig Johnson has another retail stock in mind: Guess (NYSE: GES).

“here’s a stock that’s really not on a lot of people’s radars,” Johnson, the firm’s chief market technician, said. “It’s got a $1.75 billion market cap, and only a handful of analysts are following this company fundamentally.”

Guess recently reported earnings that were roughly in line with analysts’ estimates, but the big news from the earnings report was that the company said it expects to nearly double its sales and earnings over the next five years.

“We are committed to delivering net revenues of $2.9 billion by fiscal year 2025 [versus $1.9 billion today],” CEO Carlos Alberini said on the earnings call. “I am confident that we have an opportunity to more than double our earnings per share to $3.00 [in FY 2025] from $1.33” today.

Since then, the stock has been on the upswing gaining nearly 19% since the company reported fourth quarter and full year results on March 31. Since the start of the year, the stock is up more than 23%—rising above its 2018 high—in a “consistent trend” upward, Johnson noted.

“The stock is trading at 15.5 times forward numbers, and that’s well below where some of is peers are trading at like Abercrombie & Fitch and Gap and Levi,” Johnson said. “So we think this is kind of one of those little gems out there that… we think that we would be buying.”

Source: TradingView.

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