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Watch these two luxury retail stocks, technical analyst says

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These luxury stocks are the best bet, traders say

Ralph Lauren and Lululemon could be the best of a beaten-down retail breed.

TradingAnalysis.com founder Todd Gordon says the two stocks are on his radar for possible breakouts. He says Ralph Lauren's near 3% dividend yield and 12 times forward multiple make it particularly attractive.

"We are holding uptrend support here. This is an interesting value area," Gordon said on CNBC's "Trading Nation" on Monday. "Right at about the $90-$95 region here, we have a test."

Ralph Lauren finished Monday's session at $97.72 per share. It is down over 5% for the year, underperforming the XRT, the ETF that tracks retailers, which is up over 9%. However, Gordon thinks the stock might be due for a breakout.

"If we can hold some support here right around $90 [and] we have a little bit of relief from the Chinese deal — they source a lot of their inputs from China — we could get a little bit of a pop potentially into November 7th earnings," Gordon said.

Retail stocks were in focus Monday after Tiffany reported it was reviewing a $14.5 billion takeover offer from LVMH. The XRT was up around 1% in Monday's session. Gordon says there's another name he's checking out in the bunch.

"There's another one that I really like in terms of luxury kind of athletic apparel — Lululemon. I've held this stock since the $140s. I continue to like it. We don't have earnings until December 5th, but what an amazing, amazing uptrend," he said.

Lululemon has surged nearly 70% this year, so Gordon is warning the stock is getting a bit pricey at current levels. It closed Monday's session at $205.97 per share.

"You're going to start to see a little bit of divergence as we start to hesitate as we push through $200. So, I have my finger on the ejection button here. I love the trend, but if we're to break down through uptrend support, I might kind of bail and take some profits in those positions, but watch that one while we're above support we could continue to go higher, we'll see. Going to let the trend be our friend," Gordon said.

Mark Tepper, president at Strategic Wealth Partners, agrees with Gordon's picks and says Ralph Lauren is the best relative value play.

"What you have here is you have an iconic brand with a cheap valuation. People actually know the name. … Free cash flow yield of around 8%. This is a company that can actually grow earnings high single digits to low double digits for the foreseeable future as long as they execute," Tepper said.

Tepper says the company needs to continue to focus on better blocking and tackling in the U.S., but if they do, the stock could have a potential 20-30% upside from here.

"They really need to continue this movement away from wholesale and towards more direct to consumer. The second thing is international growth. There's a huge opportunity there. They've been making a lot of progress over the last few years and it's an area for growth for them," said Tepper.

Watch CNBC's interview of Lululemon CEO Calvin McDonald at 12:30 p.m. ET Tuesday. 

Disclosure: Todd Gordon owns shares of Lululemon.

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