Trade war fears have hit many stocks hard this year.
But news that President Trump and Chinese President Xi Jinping have
agreed to meet at this week’s G-20 Summit in Japan gives us hope
that the two leaders would get along well enough to prevent the U.S.
from implementing threatened tariffs on Chinese imports.
Clothing Stores Hit Hard
Retail clothing stores, a category that imports most
of its merchandise from China, has been hit harder than most by the
tariff threats. In fact, despite the relatively strong stock market,
many apparel retailers have suffered double-digit share price drops
Screen For Rebound Candidates
While predicting the outcome of next week’s
U.S./China meeting is beyond my pay grade, I’m going to describe a
stock screen that you could use to pinpoint retail apparel stocks
likely to rebound should the talks go well. As usual, I’ll use the
user-friendly and free finviz stock screener to describe how to find
Start from the finviz home page (https://finviz.com),
and then select “screener” (top menu) to access the screening
program. You program the screener by defining “filters” to pinpoint
stocks meeting your requirements. Select “All” on the filter bar to
see the available filters. Use the dropdown menu next to a filter
name to specify values for filters that you want to use.
We’ll start by isolating U.S.-based clothing stores
stocks that have seriously underperformed the market so far this
year. Use the Country dropdown menu to select USA, the Industry menu
to specify “Apparel Stores” and finally the Performance menu to
require that passing stock’s share prices must be down at least 10
percent so far this year (YTD – 10 percent).
Since focusing on profitable stocks always yields the
best results, we’ll use “return on equity (ROE),” a widely-used
profitability gauge, to find them. ROE compares a firm’s annual
earnings to shareholders equity (assets minus liabilities) and can
only be a positive number if the firm has generated positive recent
earnings. Use the Return on Equity menu and select “positive.”
Work Smarter - Not Harder
Institutional buyers include mutual funds, banks,
pension funds, etc. These big players have access to information
that we’ll never see. So, rather than analyzing financial
statements, we’ll adopt a “work smarter, not harder” strategy and
limit our list to stocks that institutional buyers like. Specifying
“over 80 percent” for institutional ownership requires that for
passing stocks, institutional players hold at least 80 present of
Stock analysts spend their days deciding whether the
stocks that they follow should be bought or sold. finviz sorts their
advice into five categories; strong buy, buy, hold, sell, and strong
sell. Again following the “work smarter” theme, Using the Analyst
Recommendation menu, specify “buy or better.”
My screen turned up four beaten-down turnaround
here to see the stocks that the screen is turning up today.
American Eagle Outfitters (AEO): Operates 1,000+
American Eagle and Aer clothing stores in the U.S., Canada,
Mexico and Hong Kong.
Citi Trends (CTRN): Operates 500+ value-priced
clothing stores in 31 states.
Shoe Carnival (SCVL): Operates 400+ shoe stores
in the Midwest, Southern, and Southeast regions of the U.S.
Urban Outfitters (URBN): Operates 240+ Urban
Outfitters stores, and 225+ Anthropologie stores in the U.S.,
Canada, U.K., and 11 other countries.
As is always the case, consider the stocks listed by
my screen to be research candidates, not a “buy” list. The more you
know about your stocks, the better your results.