By Ben Eisen and Amrith Ramkumar
Shoppers' retreat from department stores and mall chains is
prompting stock traders to stalk the retail sector with a fervor
unseen in years.
Sales and profits at major retailers have come under immense
pressure this year, punishing the shares of Macy's Inc., Nordstrom
Inc. and Kohl's Corp. The SPDR S&P 500 Retail exchange-traded
fund has fallen 11% this year, through Wednesday, lagging far
behind a 9.1% rise in the S&P 500. Macy's is down 41% for 2017
and Target Corp. is down 30%. Wall Street is abuzz with talk that
the rise of e-commerce giant Amazon.com Inc. spells the eventual
end of traditional retail, a notion that many in the industry
vigorously dispute.
Retail's retreat and the accompanying debate have created
fertile ground for investors who buy unloved stocks, whether for a
brief bounce and quick sale or in some cases a bet that the
doomsday talk is overdone. This onslaught of bargain-seeking value
investors, trend-playing hedge-fund portfolio managers and
quick-turnaround day traders is fueling a surge in trading volume
and sharp price swings in an industry that for years was a
backwater to hotter industries such as technology and financial
services.
Trading has been frenetic. Macy's, the largest U.S. department
store chain, had its highest trading volume of any month since 2011
in May, with June not far behind. Shares fell 17% on May 11, their
worst performance since 2008, after a quarterly decline in
same-store sales. May and June were also two of the five busiest
months in the past five years for Kohl's and Target.
"With this recent huge slump, a lot of large retail companies
went on the radar for us," said Eric Mancini, director of
investment research at Traphagen Financial Group in Oradell, N.J.,
which has $530 million in assets.
After Amazon announced a deal to buy Whole Foods Market Inc. for
$13.7 billion on June 16, shares of Wal-Mart Stores Inc. sank 4.7%.
Mr. Mancini jumped into the fray soon after.
He bought shares of Wal-Mart for his clients with larger
portfolios, reasoning that valuations looked attractive after the
share-price drop. He picked up shares at a price of around $75
apiece and plans to hold them until the stock price climbs to the
$80 to $90 range, he said. The shares closed Wednesday at
$73.94.
He isn't alone in betting the selling on major retailers is
overdone. SunAmerica Asset Management and BNY Mellon Asset
Management, are among the investors that increased their stakes in
Macy's between the end of last year and March, according to S&P
Capital IQ. UBS Asset Management and Northern Trust Global
Investments increased their stakes in Nordstrom Inc. during that
period.
Amazon's rise threatens traditional retailers because it means
they must fight harder for every dollar of already scarce sales
growth, at a time more U.S. retail sales are being conducted
online. A recent 2,000-person U.S. shopper survey conducted by RBC
Capital Markets found that 93% selected Amazon as the online
shopping website they use most often, compared with 89% last
year.
Stock traders have become particularly attuned to the notion
that Amazon's gains are other retailers' losses, potentially
fueling a buy-Amazon, sell-retail trade that could exacerbate the
traditional retailers' woes. On Amazon's 10 best-performing days
this year, Macy's has fallen 2.7% on average and Kohl's has dropped
3.1%. The retail ETF was down 0.9% on average those days.
Investors are betting retail stocks will keep falling, and in
many cases it has paid off. Those who went short on food and
staples retailers, for example, made $116.3 million in paper
profits on the day after Amazon announced its Whole Foods
acquisition, according to IHS Markit.
ETF provider ProShare Advisors filed plans with securities
regulators last week for new double- and triple-levered ETFs
designed to rise on days that retail stocks fall, adding firepower
to bets on their decline. Also coming is an ETF that goes "long" on
online retailers while "shorting" traditional ones.
Because so many investors are betting that retail shares will
fall, the slightest bit of better-than-expected news is apt to
cause the shares to surge, a condition that lays the groundwork for
much-larger price swings as short sellers buy back borrowed shares
to return them to the owner.
On Thursday, Target raised its quarterly guidance for same-store
sales and earnings, pushing shares up 3.1% in recent trading. Other
large retailers also gained on the news, with Macy's shares
climbing 3.9%, and Gap Inc. shares advancing 3.2%. The three
companies were among the six best performers in the S&P 500 by
percentage gain.
The 30-day implied volatility of the retail ETF was over 19 this
week, according to Thomson Reuters data. That is well above 14.7 on
a comparable technology ETF and nearly as high as an ETF of
biotechnology stocks known to have particularly large swings, which
was at just over 20.
That volatility has been a boon to day traders, who often jump
in and out of stocks in the span of a few hours to ride small moves
in their prices. On StockTwits, a social-media platform that is
popular with day traders, average message volume about Macy's,
Nordstrom, Kohl's, J.C. Penney Co., and Sears Holdings Corp. has
collectively more than tripled since the end of last year.
"People day trade on volatility," said Vlad Karpel, a day trader
in Chicago who also runs Tradespoon, a firm that uses models to
offer buy and sell signals on stocks. "Traditionally, it's been
biotech stocks, penny stocks or leveraged ETFs. Recently, it's been
retail stocks."
On June 27, after the market closed, Mr. Karpel's models
generated a buy signal on Best Buy Co., suggesting the stock was
oversold. He said he put in an order to buy 1000 shares the next
day if the stock hit a price of $56.80. It did so in the first
half-hour of trading, and he held on to the shares until they
climbed to $57.10 within an hour. He then sold, netting about
$300.
Friday could be another big day for retailer stocks. The
Commerce Department will report retail sales for June. Analysts
expect a 0.1% rise from the prior month.
Write to Ben Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
July 13, 2017 10:37 ET (14:37 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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