Don’t run away from retail, look at these 3 names instead: Traders

The biggest names in retail have seen huge drops after a string of dismal earnings announcements. But traders are looking at three companies that could turn the retail wreck around.

Stacey Gilbert, head of derivative strategy at Susquehanna Financial Group, joined CNBC's "Trading Nation" on Monday to show that options traders think a few choice stocks may be in the bargain bin.

Department store chain J.C. Penney was one of Gilbert's picks despite a disappointing earnings report that sent the stock plunging. Though the company missed estimates, in last week's earnings call CEO Marvin Ellison praised the incorporation of makeup giant Sephora into stores, the chain's 27 new locations, and the growth of J.C. Penney's online shopping platform as positives that shaped the company's first quarter.

Perhaps it was these apparent green shoots that had options traders speculating on the name.

"Our eyes were caught by a couple of what I would call bullish or speculative types of trades, one of them was in J.C. Penney after they had released their earnings," said Gilbert. "The stock was trading down, we saw what I would call bottom fishers so that's kind of taking a shot here and buying some June 8-strike calls."

Read MoreRetail's bloodbath creates buying opportunity for this department store: Analyst

Another stock that has traders buzzing is T.J. Maxx owner TJX, especially after the company's earnings report Tuesday. The off-price fashion retailer crushed the competition with a 10 percent increase in store sales from last quarter and an increase in earnings per share to 76 cents from a year earlier, making it the only big-name retailer so far that has exceeded expectations.

TJX's chief executive, Ernie Herrman, followed the earnings report by praising the retailer's strong customer base and global reach, emphasizing that the second quarter, too, "is off to a solid start."

Rich Ross, head of technical analysis at Evercore ISI was of the same mindset Monday on "Trading Nation," pointing out that TJX's short- and long-term performance show that it can weather even the growing trend toward e-commerce.

"The U.S. consumer's not dead, they're just shopping at T.J. Maxx," he quipped. "In fact, this stock is up more than on a year-to-date basis, and that's extremely impressive, up almost 6 percent."

Ross pointed out that T.J. Maxx is actually up 800 percent since 2008 and following a trend that mirrors e-commerce giant Amazon, which he thinks makes parent TJX worth the investment.

Williams-Sonoma rounded out Gilbert's list of options traders' bets on retailers' earnings. The home furnishings and appliances giant has seen its sales increase steadily since 2010, and the next test will come when it unveils its earnings report Wednesday.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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