A government report published this morning showed that consumers throttled back on spending this past April despite their take-home income remaining relatively stable. Spending dropped two-tenths of a percent, which was especially disappointing as economists were looking for a one-tenth of a percent gain…
Is this the reality of sequestration setting in or the vanishing of some tax breaks weighing on spending? It’s hard to say at this point.
But what we can say is that certain retail stocks have been great investments over the past several months, and continue to approach 52-week highs despite these persistent negative consumer spending reports.
Take Kohl’s Corp. (NYSE: KSS), for example. The 51-year old department store chain that operates more than 1,100 stores across forty-nine states closed yesterday at $51.12, just $3.43 off of its 52-week high.
Late last year, we issued our take on Kohl’s, saying, at the time, that it was very attractive from a technical “timing” perspective:
“Playing the current “channel” trading range, there are many buying zones located near support plotted along the bottom parallel line where bulls have historically stepped in to support price. These opportunities typically show up once a year but can be rewarding.”
As you can see in the original chart from that article of KSS (below), we were quickly approaching support as defined by the lower parallel line drawn colored in white.
Back then, we predicted that traders should step in and accumulate shares in the low $40s (the buying zone) in anticipation of bullish support based on what we recognized to be a very entrenched flag pattern.
Flash forward several months and KSS shares have indeed hit our mark.
Not only did the stock rebound, but it traded to its upper channel – just like we said it would.
Investors who agreed with our take and bought shares pocketed a bit over 16% on their money. That is based on the closing price of $44.03 when we issued our Kohl’s article on December 6th, 2012. That return doesn’t even include the dividend income that KSS shareholders received over that period, either.
P.S. Check out our comprehensive financial newsletter, Investor Playbook. It uncovers “under the radar” investment opportunities often spared by problems in overall markets.