Lululemon Stock, L Brands Lead 5 Stocks From Hot Group Near Buy Points

Lululemon stock, American Eagle (AEO), Urban Outfitters (URBN), L Brands (LB) and Children’s Place (PLCE) are top retail stocks to watch this week, working on bases or nearing buy points.


Apparel retailers are rising as consumers shift spending to clothing, as the pandemic eases. As they return to movies, restaurants and offices, Americans are renewing their wardrobes with workwear, dresses and a ton of new clothes generally. The apparel retail group as a whole currently ranks No. 10 out of 197 industry groups tracked by IBD. Apparel makers, including Nike (NKE) and IBD 50 stock Figs (FIGS), are also acting well.

Four of this week’s top five retail stocks have a strong relative strength line. The exception is Lululemon Athletica (LULU), whose RS line is lagging as the retail stock makes its way back from a long consolidation.

A rising RS line means that a stock is outperforming the S&P 500 index. It is the blue line in the charts shown.

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The relative strength line is a quick way to spot winners in any market — up or down.

The Relative Strength At New High stocks list is a great place to look for quality names with strong RS lines. IBD’s stock research platform MarketSmith has a screening tool that identifies stocks with RS lines making new highs.

In addition, the best growth stocks have an IBD Composite Rating of 90 or better, out of a best-possible 99.

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Lululemon boasts a near-perfect Composite Rating of 98, followed by Urban Outfitters stock with a 93. American Eagle stock has a 91 Composite Rating, L Brands with an 89 and Children’s Place an 84. The Composite Rating combines five separate proprietary IBD ratings, based on key fundamental and technical criteria, into one easy-to-use score.

Lululemon Stock

Shares of the yogawear maker sit 5% below a 387.47 buy point after a bounce off the 10-week moving average, according to MarketSmith chart analysis. Lululemon stock technically has a 371.10 handle entry on a daily chart. But it’s a wafer-thin handle with virtually no shakeout. On a weekly chart, there is no handle. So 387.47 seems like a better entry.

The Canada-based company has rallied for six straight weeks. In early June, Lululemon reported that fiscal 2021 first-quarter earnings soared 427% year over year as sales jumped 88%, reflecting easy pandemic-influenced comparisons in part.

The RS line for LULU stock is improving. It rose sharply from May 2017 to August 2020, then slid.

The former retail leader now has a dull IBD Relative Strength Rating of 49. That means it has outperformed just 49% of all stocks over the past 12 months. However, Lululemon earns a superior EPS Rating of 97 out of a best-possible 99. But earnings fell in fiscal 2020, ending Jan. 31, 2021, amid the pandemic. In all of fiscal 2021, Wall Street expects Lululemon earnings to grow 45% as sales rise 34%, according to FactSet.

American Eagle Stock

AEO stock held near a 38.38 buy point after briefly clearing the entry on June 25. American Eagle stock is now about 2% below the buy point while its RS line is just below the consolidation peak. Shares rallied sharply for most of 2020 and early this year.

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Investors could use 38.38 as the buy point or treat the June 25 peak as the start of a high handle, offering a 39.09 entry. One option is to start a position at 38.38 and fill it out at 39.09.

AEO stock owns a strong RS Rating of 95 but a lackluster EPS Rating of 57. On a per-share basis, analysts expect American Eagle earnings to rebound to $2.12 in the current fiscal year, from a 13-cent loss last year.

Urban Outfitters Stock

Like AEO, Urban Outfitters stock has been flirting with a buy point. Shares tried to regain a 42.05 buy point this past week after briefly topping the entry in the prior week, after a strong rebound off the 10-week line. URBN stock now sits 4% below the buy point with its RS line still below the consolidation peak. Urban Outfitters’ RS line, too, rallied sharply for most of 2020 and into 2021.

URBN stock  has a 91 RS Rating and a 43 EPS Rating. Analysts expect Urban Outfitters earnings to bounce back to $2.63 per share in all of fiscal 2022, after being nearly wiped out last year to two cents a share.

L Brands Stock

Shares for the Victoria’s Secret parent are in a buy zone after breaking out last week. L Brands stock cleared a 72.09 flat-base buy point after rebounding off the 10-week line. It’s now about 3% above the entry, within a proper buying zone, which tops out at 75.69.

The RS line for L Brands stock is making a new high, a bullish sign.

LB stock has a 97 RS Rating and 69 EPS Rating. Analysts expect L Brands earnings to grow 67% to $5.78 in fiscal 2022 as sales rise 21%, after falling 8% last year amid the pandemic.

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Children’s Place Stock

PLCE stock has a new base with a 103.43 buy point as of Friday’s close, following a mid-May breakout from a cup-with-handle pattern. Children’s Place stock is 10% below the new entry in a base-on-base pattern, but its rising RS line is just below highs.

Children’s Place stock earns a 95 RS Rating and a 42 EPS Rating. Analysts expect Children’s Place earnings to rebound to $8.36 per share in fiscal 2022 after a 99-cent loss a share the prior year.

Find Aparna Narayanan on Twitter at @IBD_Aparna.


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