Retail Sector Gets Down to a Six Pack

At some point, disruptive technology enters every industry that reshapes how business is done on a long-term basis.

Such a transformation is taking place within the retail industry, with the shift to online shopping taking hold of consumer buying patterns on a rapidly growing basis. Going to the mall is becoming more of an experiential trend, in which going to stores is akin to going to showrooms where coveted items will be acquired for lower prices from shopping on websites.

When most retail stocks that operate within the brick-and-mortar models are getting clobbered on a daily basis, there is little reason to fight that trend. Instead, run with it rather than hold out for a few bullet-proof, stand-alone retailers that still have consumers willing to put two hands on the shopping basket. Same-day delivery is already available in many cities and the ability to provide instant gratification is a powerful proposition for millions of consumers who desire this option. But millions of shoppers still may want to check out future purchase items firsthand before offering their Visa or MasterCard.

As I survey the retail sector for investing and trading purposes, the universe of stock choices boils down to just a few names that deserve our attention. They include Amazon.com (AMZN), Wal-Mart (WMT), Costco (COST), Home Depot (HD), Ulta Salon (ULTA), Best Buy (BBY), Alibaba (BABA), JD.com (JD), MercadoLibre (MELI) and Shopify (SHOP). No one need look beyond these 10 stocks to define one’s retail portfolio. I’m a big fan of short lists of stocks that trade liquid volume. From what I view where the fund flows are most pronounced, it’s in these names.

Amazon obviously rules the day and is the trailblazer in the retail category. The company is forcing the hand of every traditional retailer to change or die. Wal-Mart still has its daily foot traffic, but has begun to respond aggressively with its online footprint through the recent acquisition of Jet.com. Costco is simply America’s favorite grocery store where one-stop shoppers are in nirvana. Home Depot stands head and shoulders above all home remodeling and repair go-to destinations. No woman is going to pass up going to Ulta Salon to get what she needs right now for beauty items. Best Buy is quietly becoming the best place to shop for new appliances for the home and office as well as sound systems and friendly Geeks that will fix your stuff on site.

As for the global online marketplace, China is transforming its economy from manufacturing to consumer driven, essentially leapfrogging brick and mortar structures primarily to online purchases. For manufacturers and vendors looking for deals on bulk purchases, Alibaba.com is the biggest provider by a wide margin. As for consumers, the largest online retailer in China is JD.com, which is also the largest e-commerce online company behind Amazon. MercadoLibre is a based out of Argentina and is Latin America’s largest online shopping presence in what is still a fairly young market for e-commerce in that part of the world.

Last, but certainly not least, is Shopify, the best-positioned company to foster growth for the millions of small cottage industry businesses in North America. This company provides an amazing platform for small businesses to smoothly transact from the buyer to the fulfillment house, be it the garage or a large warehouse. Shopify also tracks buyer patterns and interfaces with digital payment companies better than anyone. It makes running a small business super-efficient. Once installed, Shopify almost never loses a client. I view Shopify as quite likely the best of the lot. The stock has rallied hugely and needs to consolidate before I would recommend buying shares.

What’s nice about this retail setup is that once a shortlist is established, we can selectively trade these stocks by using a proactive covered-call strategy to capture the high level of volatility associated with the sector. While investors are running for the exits in stocks like Macys, Nordstrom, Lulu Athletica and Ralph Lauren, there is plenty of upside opportunity in the stocks that thrive in a business climate of growing online sales. It is just that the blow-ups heighten the risk profile of the entire sector, but that’s what makes for a good backdrop for trading option premium against the names that are working.

In my covered-call advisory service Quick Income Trader, I handpick these selective stocks that carry above-average risk/reward ratios that afford the selling of call premium. I recommend taking a tour of the methodology and the features of the service by clicking here and seeing if Quick Income Trader is a good fit for your income trading capital that is designed to deliver up to 10% per month from our covered-call trading strategies. There’s nothing like adding some quick income to one’s account that keeps the e-commerce business alive and well.

In case you missed it, I encourage you to read my e-letter from last week about the slowed progress on President Trump’s proposed bills.