Unusual Trading Volume Could Bring Breakouts in These 3 Names

Key Points

• Trading volume for these three stocks raised some questions about whether there will be future upside momentum.
• Wall Street analysts believe there could be, as their price targets and EPS projections point to double-digit upside runs.
• Backed by fundamental tailwinds, these companies could be set to deliver for the institutions that bought them. 

Volume-weighted average prices (VWAP) are on most retail trading indicator lists for a reason: They matter. Volume is one of the most critical inputs for stock prices to move in a specific direction, so investors should watch out for any unusual trading volume spikes (buying or selling volume).

Today, this screener flagged a few stocks looking for unusual trading volume spikes, and investors should stick around to find out why market participants found enough interest in these companies in the first place. This list includes Chewy Inc. NYSE: CHWY, Cava Group Inc. NYSE: CAVA, and American Airlines Group Inc. NASDAQ: AAL.

Each of these stocks has a solid fundamental reason to attract investors throughout the market, and investors could benefit from understanding these forces before potentially following in the ‘professionals’ in the blind. Today’s economy is looking grim, so more traders and investors are likely becoming as picky as ever; here’s why.

A Tough Market for 2024 and Beyond

For the past semester, economists have had to wake up to one of history's most dreaded economic phenomena: Stagflation. Defined as low economic growth (measured through GDP) and high inflation, the U.S. economy unfortunately fits that profile.

The past quarter saw a revised 1.3% GDP growth for the economy; inflation stood above 3% during the same measuring period. Since the economy was more than double the rate of economic growth, the economy actually contracted on a real—not nominal—basis.

Of course, investors may have seen this coming after noticing both the ISM manufacturing PMI and its cousin, the services PMI, had slowed into contraction during the past quarter. Now, what can those managing their own money do in this environment?

First, they can look for stocks that are looking to deliver above average growth, with reasonable tailwinds behind them. Secondly, volume breakouts coming from Wall Street firms could also be taken as a good sign of potential rebounds.

Chewy is Checking Growth Off the List

Because Chewy offers products that could fall into the consumer staples sector, it fits the stability (demand-wise) profile and growth. It doesn’t matter if the economy is booming or busting; pet owners will always find a way to squeeze food and healthcare into their budgets, which also applies to the furry family members.

Analysts on Wall Street expect to see up to 162.5% earnings per share (EPS) growth over the next 12 months for Chewy. Now that the stock found its bottom at only 52% of its 52-week high price, there’s also a specific reason for the volume spike.

After announcing its first quarter 2024 earnings, results that blew Wall Street expectations drew in some traders who may have been waiting on the sidelines for a good enough catalyst to make a jump for Chewy stock.

Adjusting their views for the recent results, analysts at Morgan Stanley saw it fit to boost their valuations for Chewy up to $28 a share, daring the stock to rally by 32% from where it trades today. But these analysts weren’t the only ones on Wall Street looking to get a piece of Chewy.

Lazard Asset Management initiated a stake in Chewy stock of up to $6.6 million in the past quarter, aiding the stock's recent volume breakouts.

Inflation-choked Consumers May Look to Cava 

Expecting to see up to 35.3% EPS growth this year, Cava stock investors enjoyed a rise to 95% of the stock’s 52-week high recently, but that’s not even close to where the story ends.

Analysts at Jefferies Financial Group felt comfortable enough to boost Cava’s price target from $72 a share up to $94 as of May 2024. After four months of contraction, U.S. consumer sentiment readings finally pushed to the upside, helping consumer discretionary stocks like Cava see a brighter future.

Among the big buyers bringing on this volume breakout is the Vanguard Group, as the asset manager started a $346.3 million position in Cava stock, helping push out short sellers as Cava’s short interest declined by up to 3.4% in the past month.

Expecting more growth, markets are willing to pay a 14.5x price-to-sales (P/S) ratio for the stock, significantly above the retail sector’s 2.4x average.

Travel is Back, American Airlines Could be Too 

After spotting a volume breakout in the stock, investors may have new reasons to believe the bottom could be here soon. Trading at 60% of its 52-week high price, American Airlines stock could see further runs higher as analysts expect to see EPS growth of 26.1% this year.

Within these assumptions, analysts may have added that the Transportation Security Administration (TSA) recently saw a record number of passengers in a single day, giving reasons to believe that not even inflation could stop the summer travel season.

Those at J.P. Morgan Chase & Co. saw it fit to place a valuation of up to $21 a share for American Airlines stock, daring it to rally by 82.65% from where it trades today. The Vanguard Group came to help the volume breakout as it boosted its take in the stock by 1.1% as of May, bringing its net investment to $1.2 billion.

The stock’s 19.2x P/E ratio stands above the air transportation industry’s 8x average valuation, bringing investors another justified premium that so-called “smart money” saw fit to buy.