Market Overview

Three Retail Stocks to Sell or Short (JCP, RSH, SWY)

A research report from UBS (NYSE: UBS) released this week included a list of the analyst's “least preferred” stocks.

The stocks on the list had an average potential downside of 20 percent. The list also offers candidates for investors to sell or to short.

Three struggling retail stocks made the list: J.C. Penney (NYSE: JCP), RadioShack (NYSE: RSH) and Safeway (NYSE: SWY). Below is a quick look at how these three stocks have fared and what analysts expect from them.

Some other picks on the UBS list of least preferred stocks include ConocoPhillips (NYSE: COP), Meritage Homes (NYSE: MTH) and Kansas City Southern (NYSE: KSU).

J.C. Penney

This Texas-based department store operator sports a market capitalization of a little more than $3 billion. It does not offer a dividend. Note that its long-term earnings per share (EPS) growth forecast and its return on equity are both in the red. It posted a much larger-than-expected net loss in the most recent quarter, and analysts expect another net loss in the current quarter.

The short interest in J.C. Penney was about 30 percent of the float as of the March 15 settlement date. That was down about two percent from the previous period, though the average daily volume was the highest it has been in a year.

The consensus recommendation of the 20 analysts that follow the stock and were polled by Thomson/First Call is to hold shares, with seven of them rating it at Underperform. The mean price target, or where the analysts expect the share price to go, of $15.39 represents about five percent potential upside. But the UBS target price is $10.

The share price is down about 30 percent year-to-date to near the 52-week low. Over the past six months, the stock has underperformed competitors Macy's (NYSE: M) and Kohl's (NYSE: KSS), as well as the broader markets.

RadioShack

Also based in Texas, this retailer of consumer electronics has a market cap of more than $300 million, and it does not offer a dividend either. Its long-term EPS growth forecast is about nine percent. But here too the return on equity is in negative territory. RadioShack posted a surprise profit in the most recent quarter, but analyst are looking for another net loss in the current quarter.

The short interest in RadioShack was about 36 percent of the float in the middle of March. That was the highest number of shares sold short so far this year, and days to cover rose to more than 13 for the first time since November.

Only one of the 20 analysts surveyed recommends buying shares. The consensus recommendation has been to hold stocks for at least three months. The mean price target of $2.62 is less than the current share price. The UBS price target is even lower, at $2.00.

The share price has pulled back more than 12 percent in the past two weeks but is about 43 percent higher year to date. Over the past six months, the stock has outperformed larger competitor Best Buy (NYSE: BBY) and the broader markets.

Safeway

This supermarket operator is headquartered in Pleasanton, California, and has a market capitalization of about $6 billion, as well as a dividend yield near 2.7 percent. The price-to-earnings (P/E) ratio is greater than the industry average, but the long-term EPS growth forecast is more than 12 percent. And the return on equity is almost 17 percent.

The number of Safeway shares sold short as of mid-March represented about 24 percent of the total float. But the short interest had fallen for three straight periods to the lowest it has been in at least a year. Days to cover was about eight.

More of the surveyed analysts rate the stock at Underperform than those that recommend buying shares. The share price has overrun the mean price target of $23.62, which means analysts on average see not potential upside at this time. The UBS price target is just $19.

The share price is up more than 39 percent year-to-date, despite retreating almost three percent from last week's multiyear high. The stock has outperformed competitors Kroger (NYSE: KR) and Walmart (NYSE: WMT), as well as the broader markets, over the past six months.

Posted-In: best buy ConocoPhillips J.C. Penney Kansas City Southern kohl's KrogerShort Ideas Trading Ideas Best of Benzinga

 

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