When the economy contracts, consumers shift their spending habits. This can result in a number of companies losing market share – while a few gain. That can be seen across a number of industries.
Based on the earnings data so far, one prospective place for strong returns going forward could come from discount retailers. These companies have been hit like other stocks right now, but going forward could see strong sales and rising market share.
One prospective play here is retailer Ross Stores (ROST). Shares dropped over 20 percent following earnings last week. Yet the off-price retailer has been a strong operational performer, with only a slight drop in revenues now.
Shares are now down 42 percent over the past year, even as revenue has only dropped by 4 percent. With shares going from over 50 times earnings last year to under 19 times at present, shares look priced well for a rebound from here.
Action to take: Investors may like shares here. The company is a dividend growth player, with share yielding 1.7 percent at present, and with a low payout ratio for further rate hikes down the line.
For traders, the November $85 calls, last going for about $4.50, could return high double-digit returns well before expiration, even with a modest rally in shares from here.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.