I understand the rally following Phase 1 of the US-China deal. Markets had been pricing in a chance that no deal gets done. That caused stocks to become oversold, betting against a deal and showing odds of a continued global slowdown. Good news is, those fears are subsiding and now we are seeing a bit of a relief rally. That doesn’t mean that investors should throw caution to the wind. In fact, there are more traps than ever being sprung in a market like this. If you’re looking to keep the odds in your favor, the Zacks Rank is a good place to start. Stocks with favorable Zacks Ranks have very strong underlying earnings trends which can help them continue to march higher. Stocks with lower Zacks Ranks have weaker or even negative earnings trends which could weigh on price in any market.
One such stock to be cautious of is today’s Bear of the Day, The Children’s Place (PLCE - Free Report) . The Children's Place, Inc. operates as a children's specialty apparel retailer. The company operates through two segments, The Children's Place U.S. and The Children's Place International. It sells apparel, footwear, accessories, and other items for children; and designs, contracts to manufacture, and sells merchandise under the proprietary The Children's Place, Place, and Baby Place brand names. As of February 2, 2019, the company operated 972 stores in the United States, Canada, and Puerto Rico; and 217 international points of distribution operated by its 8 franchise partners in 20 countries.
While the Retail – Apparel and Shoes industry is in the Top 26% of our Zacks Industry Rank, The Children’s Place is currently a Zacks Rank #5 (Strong Sell). The reason for the unfavorable ranking is the flurry of negative earnings estimate revisions. Over the last sixty days, five analysts have cut their earnings estimates for the current year and next year. The negative revisions have cut our Current Year Zacks Consensus Estimates from $6.17 down to $5.62. Next year’s number has come down from $8.40 to $7.71.
On a positive note, while the current year consensus reflects an earnings contraction of 16.74%, next year’s EPS estimates are currently baking in earnings growth of 37.15%. If the stock can get through this initial rough patch, there could be plenty of upside action in the distant future.
For now, investors looking for other stocks in the retail industry have plenty of Zacks Rank #1 (Strong Buy) stocks to choose from. I suggest beginning your research by taking a look at Buckle (BKE - Free Report) and Capri Holdings (CPRI - Free Report) .
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