Long high-end retail and short low-end retail through 2024 – Wolfe Research

Wolfe Research analysts believe shorting low-end retail stocks and buying high-end retailers should be a winning combination through the end of the year.

“With stocks and real estate contributing roughly $50T in gains to household balance sheets since the end of 2019, consumers [are] feeling the positive impacts of the wealth effect,” wrote Chris Senyek, chief investment strategist at Wolfe Research, in a note.

He recommended shorting low-end retail stocks and to long high-end retail stocks, and put up a basket for both.

High-end spending:

• Toll Brothers (TOL) – P/E: 12.7x; Year-to-date return: 48%
• Ralph Lauren (RL) – P/E: 24.2x; Year-to-date return: 37%
• Tapestry (TPR) – P/E: 11.6x; Year-to-date return: 26%
• Nordstrom (JWN) – P/E: 12.9x; Year-to-date return: 23%
• Richemont (OTCPK:CFRHF) – P/E: 20.3x; Year-to-date return: 12%
• Hermes International (OTCPK:HESAY) – P/E: 10.0x; Year-to-date return: 11%
• Restoration Hardware (RH) – P/E: 13.2x; Year-to-date return: 11%
• Louis Vuitton (OTCPK:LVMHF) – P/E: 20.7x; Year-to-date return: -11%
• Brunswick Corp. (BC) – P/E: 8.9x; Year-to-date return: -16%
• PVH Corp. (PVH) – P/E: 12.2x; Year-to-date return: -21%

Low-end spending:

• Walmart (WMT) – P/E: 29.0x; Year-to-date return: 53%
• Bread Financial (BFH) – P/E: 3.8x; Year-to-date return: 49%
• Ross Stores (ROST) – P/E: 32.8x; Year-to-date return: 3%
• Monro Inc. (MNRO) – P/E: 17.0x; Year-to-date return: -3%
• Upbound Group (UPBD) – P/E: 8.3x; Year-to-date return: -11%
• LGI Homes (LGIH) – P/E: 12.6x; Year-to-date return: -17%
• Advance Auto Parts (AAP) – P/E: 24.9x; Year-to-date return: -35%
• Dollar General (DG) – P/E: 7.8x; Year-to-date return: -37%
• Cracker Barrel (CBRL) – P/E: 8.3x; Year-to-date return: -40%
• Dollar Tree (DLTR) – P/E: 9.8x; Year-to-date return: -51%
• FIVE Below (FIVE) – P/E: 19.7x; Year-to-date return: -57%