Retail Bubble Stocks Play On Earnings Momentum

Tickers in this article: UA AMZN HD COST WMT
NEW YORK ( TheStreet) -- It is very unusual for retail stocks to be a play on momentum, but that's what has happened this year to a dozen retailers that I describe as bubble stocks.

Nine are in the retail-wholesale sector which is 7.2% overvalued according to www.ValuEngine.com. Two are in the consumer staples sector which is the most overvalued sector by 13.9%. These 12 stocks are in consumer discretionary which is 2.8% undervalued.

On Oct. 17 I wrote Analyzing the Retail Stock Bubble and since then there have been two downgrades. One set a new all-time high on Wednesday and another, the archrival of the other, is set for a new multi-year high today. This second one is the only retailer in the dozen that is still shy of its all-time high.

Four stocks are overvalued, six have trailing 12 month price-to-earnings ratios above 20.0, nine have gains of more than 25% over the last twelve months, but none are projected to match these past gains over the next 12 months.

Ten of the twelve retailers are above their 200-day simple moving averages.

The Conference Board's reading on consumer confidence rose to 73.7 in November was the highest reading since February 2008, but keep in mind that this is well below the neutral zone of 90 to 110 for this measure.

Chart Courtesy of dshort -- Advisor Perspectives

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last twelve months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next twelve months. Stocks with a black number in the table are projected to move higher by that percentage over the next twelve months.

Value Level: The price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC limit order to sell on strength.

Amazon.com (AMZN) ($247.11 vs. $243.94 on Oct. 17): Set an all-time high at $264.11 on Sept. 14. Amazon was downgraded to hold from buy this week, but its weekly chart shifts to positive on a close this week above the five-week modified moving average at $239.28. The stock's 200-day simple moving average provided a buying opportunity at $219.57 on Nov. 15. My semiannual pivot at $236.25 is my value level with a quarterly risky level at $263.71.