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The Case For Owning Beaten Up Retail Stocks

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The Case For Owning Beaten Up Retail Stocks
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Retail stocks remain under pressure and the related exchange-traded fund, the SPDR S&P Retail (ETF) (NYSE: XRT), saw one of its worst trading weeks since the end of December. While many investors remain concerned of retail's ongoing woes, the weakness could be seen as a buying opportunity heading into the holiday season, according to Boris Schlossberg, managing director of FX strategy at BK Asset Management.

The key driver that could send retail stocks higher in the near term is consumer wage growth, he explained during a recent CNBC "Trading Nation" segment. So long as wage growth remains "healthy" then consumer spending heading into the holiday season will be at the very least "pretty good."

"Buying the dip is not a bad idea at this point," he emphasized.

Trading Ideas

Investors may want to consider a pair trade whereby a short position in the ETF is taken and simultaneously buying some of the "stronger names" in the group — or even some of the "badly beaten" up stocks, Max Wolff of Disruptive Technology Advisers suggested during the "Trading Nation" segment.

The logic behind this is that the ETF includes "some weird names" and poor performers, including companies whose stock have been "badly beaten up." For example, shares of Ulta Beauty Inc (NASDAQ: ULTA) have lost around 10 percent over the past five trading sessions.

Some of the stronger names investors should consider include Five Below Inc (NASDAQ: FIVE) and a "badly beaten up" idea includes Gap Inc (NYSE: GPS), he concluded.

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