Retailers are lurking under the radar into year end and will likely surge in 2018. The reasoning stems from end of year tax loss selling and a new corporate tax code that will cause a 20% jump in earnings across the board. Many investors are curious why they have not already shot dramatically higher with the tax plan passing? This is because buyers on the tax plan are being met with tax loss sellers. Essentially, investors with losses in retailers (which is most) are taking those losses to cancel out taxes owed on their winners. This is standard practice for smart investors.
The best trade setups for January 2018 are the retailers that are beaten down. I like J C Penney (NYSE:JCP) as my top pick. The reason stems from the company report much better-than-expected earnings last quarter but still being very close to their mult-year lows. Add in the benefit from tax reform and J C Penney (JCP) should have as much as 35% upside in the first quarter of 2018. While I do not own any yet, it is at the top of my buy list starting in January when tax loss selling is over. Other interesting plays are Under Armor (NYSE:UAA) and Fossil Group (NASDAQ:FOSL). The one I would avoid is Sears Holdings (NASDAQ:SHLD) because it literally cannot even get any sort of bounce off its mult-year lows. I worry there may be major financial trouble for that company regardless of the tax cuts passed.
