2 Stocks This Technical Analyst Says Investors Should Watch Now

And one of the two could see double-digit upside ahead. Here’s why. 

There are two stocks in the luxury retail sector that one expert says could be on the cusp of a breakout.

Todd Gordon, founder of TradingAnalysis.com, says Ralph Lauren (NYSE: RL) and Lululemon (NASDAQ: LULU) are on his radar now, and says Ralph Lauren in particular is looking especially attractive right now for its almost 3% dividend yield and 12 times forward multiple, a 25% discount to its historical average.

“We are holding uptrend support here,” Gordon told CNBC. “This is an interesting value area. Right at about the $90 – $95 region here, we have a test.”

Source: CNBC.

Currently, Ralph Lauren stock is at $95.37 and is down nearly -7% year-to-date, which means it is underperforming the broader sector as the XRT Retail SPDR is currently up 6.56% so far this year. But Gordon says Ralph Lauren shares could soon start heading higher.

“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.

But any relief on the trade war front is looking a bit shaky. Bloomberg reported Thursday morning that Chinese policy makers are casting doubt on it and the U.S. being able to reach a comprehensive trade deal, even as the two sides prepare to sign the “phase one” deal they agreed on at their October meeting. Chinese officials have warned that they won’t budge on the thorniest issues that are at the heart of the trade dispute and are concerned about President Donald Trump’s impulsive nature and the risk of him backing out even before the limited deal both sides have said they want to sign soon.

But trade war aside, Credit Suisse’s Michael Binetti rates the stock a Buy and says it can hit $145—roughly 52% above the price as of this writing—as “brand momentum” improves, while the consensus price target for the stock indicates nearly 33% upside ahead over the next twelve months.

Strategic Wealth Partners president Mark Tepper likes Ralph Lauren as well.

“What you have here is you have an iconic brand with a cheap valuation,” Tepper said. “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.”

“[Ralph Lauren] really needs to continue this movement away from wholesale and towards more direct to consumer,” Tepper continued. “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.”

But Ralph Lauren isn’t the only luxury retail stock that Gordon has his eye on. 

“There’s another one that I really like in terms of luxury kind of athletic apparel – Lululemon,” Gordon said. “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.”

Lululemon shares are up just over 69% so far this year. While Gordon warned that it is starting to look a little pricey, that doesn’t necessarily mean the uptrend is over.

“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,” Gordon said. “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.”

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