Most readers are well aware of our proprietary point-and-figure charting system (details here). And while we find it particularly useful when it comes to identifying stocks that are in jeopardy of underperforming the benchmark (i.e. things we would like to sell or avoid), it can often be a source of motivation to take a closer look at a certain stock or group of stocks. As we saw earlier today with the homebuilders, common trends in price movements can exist for most (if not all) of the constituents in a sub-industry. Though that group is an example of a chart pattern that we would avoid (as the saying goes: the bigger the top, the steeper the drop!), there is another group whose members seem to be in much more constructive relative trends at the moment.
Something special appears to be going on for South African Apparel Retailers these days. With one member breaking out from a multi-year consolidation and the other two moving up from substantial base formations, this group looks interesting on a technical basis:
In addition. the sub-industry has been one of the best performers among all MSCI South Africa so far this year:
And, on an intangible-adjusted valuation basis, the group is not extremely expensive-- especially when compared to some of the South African Cable & Satellite or Financial sector's sub-industries:
While the 3.2% dividend yield is just average among its peers in the same country, it trails only the Food Distributor sub-industry with respect to regularly increasing those dividends each year:
The South African Apparel Retail group is also one of the leading investors in advertising and firm-specific resources-- an important indicator of constituents' commitment to investment in performance enhancing intellectual property (for more on the difference investments in intangibles can make, see here):
In addition to relatively healthy cash levels...
The group also has very low net-debt levels:
All of which helps to generate strong profitability:
So, while our point-and-figure charts are perhaps most useful in helping us avoid instances of big relative underperformance, the positive trends that we spot there (such as the bases and breakouts shown above) can be extremely useful in our efforts to "water the flowers and pull the weeds".