Beaten-up retail stocks offer investors either a compelling investment opportunity or should be completely avoided amid further downside — depending on who you ask.
The Expert
Cowen's David Seaburg.
The Strategy
Investors should either be selling their position in Foot Locker, Inc. (NYSE:FL) and Dicks Sporting Goods Inc (NYSE:DKS) heading into their respective earnings reports or even short-selling the stock, Seaburg said.
The Thesis
Foot Locker, which reports Nov. 17, and Dicks, which reports Nov. 14, continue to face cyclical and structural pressures as major brands like Nike Inc (NYSE:NKE) continue to place less emphasis on selling their products through physical retailers, Seaburg said.
Nike made it clear during its investor day presentation that it wants to build out its own direct-to-consumer channel, which will obviously place "significant pressure on the wholesale channel," the Cowen analyst said.
Disappointing results from Foot Locker could push the stock lower from its current $30 level to $28, and Dicks' stock could move from its $26 level to as low as $22, Seaburg said.
Nike is also at risk, as poor results from the athletic retailers could result in Nike's stock moving lower from a "sentiment perspective," he said.
Price Action
Shares of Foot Locker were trading lower by around 1 percent on Monday, while Dicks' stock lost nearly 2.5 percent.
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