Short interest in many high-quality retail names is rising, setting them up for a buy-the-dip opportunity. While sales are slowing or declining compared to the prior year, these companies have stabilized or stabilizing at levels well above the pre-pandemic period and have a favorable outlook for investors. The takeaway is that near-term headwinds may weigh on the share price today, but longer-term growth and capital returns will lead these stocks higher. The only question is when the next dip in the price action will come and how deep of an opportunity it will present.
Tractor Supply Company gets sentiment reset
Tractor Supply Company (NASDAQ: TSCO) is one of the biggest winners in retail today. The pandemic was the perfect backdrop for incoming CEO Hal Lawton, and his efforts resonated throughout the system. The lean into digital channels and better merchandising helped launch the company to its loftiest heights, and the stock followed. The analysts helped to double the stock price but are now trimming their targets. The prospect of slowing growth, sluggish growth and the expected contraction in Q4 capped gains and drew the attention of the short sellers.
The short interest in TSCO topped 10% in November and is unlikely to have changed much since. The caveat is that while the analysts have trimmed targets and helped to pressure the stock lower, they still rate it a Moderate Buy and see it advancing 10% at the consensus mid-point. The consensus is down from the peak set earlier this year but flat compared to last year, suggesting a reasonably firm target and a possible catalyst for higher price action should the Q4 results and guidance come in solid. Analysts expect revenue and earnings to fall about 8% in Q4 and for growth to resume in 2024.
The price action in TSCO is moving higher within a trading range and approaching potential resistance at the mid-point of the range. Another selloff is likely if the market can’t get above that level. However, a move above the midpoint is potentially bullish and may lead the shorts to begin covering positions. This stock could advance to the top of the range and the all-time high in that scenario.
Kohl’s eyed as takeover target; short squeeze possible
Kohl’s (NYSE: KSS) is another retailer with a relatively high short interest, about 25% at the last report, and has a high probability of a short squeeze. The short interest is up due to uncertainty over the turnaround, concern the dividend will be cut and recently reported weakness in results. The caveat is that Kohl’s turnaround is getting traction, and the company is well-positioned in the off-price retail space. The dividend is a concern, but coverage is sufficient, with improvement expected sequentially over the coming quarters.
The dividend, business turnaround and deep value will help lift the stock over time, but the possibility of a buyout provides the best odds for a short squeeze. The proposed deal to take Macy’s (NYSE: M) private highlights deep values across the retail sector, such as Kohl’s and has the stock moving higher and on track to reverse. Even without an offer, the possibility of a buyout may flush the bears out of this market and allow for upward price movement akin to off-price leader TJX Companies.
Crocs stabilizes, uptrend intact, robust upside ahead
Crocs (NASDAQ: CROX) is carrying a moderately high 10% short interest due to post-COVID industry normalization that has the stock trading at a deep value, confirming the long-term uptrend. The market made some large swings over the past 2 years, correcting about 75% from peak to trough, so volatility is a significant risk for bulls and bears. However, the swings are narrowing and point to market equilibrium, while recent action suggests the price has reached realistic levels that bulls can engage with.
Among the positive factors driving this market is analyst support. The analysts tracked by Marketbeat.com rate this stock at Moderate Buy and have issued enough upgrades to place it on the Top Rated Stocks list. The price target has moderated from its recent highs but remains favorable to shareholders. The analysts’ lowest price target of $101 suggests the floor is close, aligned with the uptrend line, and the upside potential is robust. The consensus figure is 30% above the current action and up 50% compared to last year.
