3 Top Retail Stocks at the Moment

The ongoing so-called ‘retail apocalypse’ has taken its toll on many businesses across the U.S., but these 3 top stocks are making a big mark on the retail landscape.

Jan. 3, 2020

The Internet has changed how business is done, but it hasn’t spelled the end for traditional brick-and-mortar businesses. The increasing competition and convergence across industries have changed business dynamics. To remain competitive, many retailers have changed business strategies and are looking to find new ways to drive growth, profitability and find a way to survive the e-commerce boom. In this article, we discuss three U.S. retailers who are successfully able to survive the continued onslaught of online shopping.

1. Walmart’s (NYSE: WMT) recent financial performance has shown resilience. Revenue growth has been accelerated even in the quarters before the holiday season. The shares currently trade at record highs — as of December 23, 2019 — valuing Walmart at $341 billion. The company is less susceptible to e-commerce rise because of its scale in the grocery business, which accounts for more than half of all U.S. retail sales. While it is the unrivaled largest retailer in the country, it is still trying to build better economics in its e-commerce business. Walmart is constantly trying to expand through a string of new ventures and acquisitions. It acquired ‘Jetblack’, a text message-based personal shopping service, ‘ModCloth’ a women’s-clothing website, and ‘Flipkart’, the Indian e-commerce giant. It generated $17 billion in free cash flows in 2018 which gives it ample room to invest in new brands and focus on brands that are developed internally in the coming years.

2. Target (NYSE: TGT) has also posted a strong sales growth for the last two years, unlike department stores like J.C. Penney (NYSE: JCP), Kohl’s (NYSE: KSS), Macy’s (NYSE: M), Nordstrom (NYSE: JWM) etc. who are struggling to avoid sales decline and declining operating margins. Most of these department stores are losing sales in the apparel segment, but Target’s strong presence in discretionary categories like food, beverages, and household essentials makes it a better pick for investors. Target’s stock has nearly doubled over the past year as it consistently delivered strong sales growth in all three quarters of this year. Investors believe the strong performance should be attributed to good management, strong private brands, omnichannel investments, and off-mall store locations. The real success may lie in the grocery business, as it drives strong traffic to its stores. This is what the other department stores are lacking at the moment, due to the surge in e-commerce.

3. Home Depot (NYSE: HD) had a difficult start to the year as bad weather and sliding timber prices led to disappointing quarterly results this year. But these are just short term hindrances, overall annual sales have risen by an average 6.9% over the past three years. It is projected to do 2.3% this year, which is still respectable. HD shares are still up 28.73% — as of 23rd December 2019 — and trades at a trailing P/E of 21.9, slightly lower than its three-year average. Investors consider it a typical dividend growth stock. Its board has increased the dividend 21.5% on an average each year and has a current dividend yield of 2.5%. The U.S. consumer spending is expected to be strong in 2020 and more than 50% of homes in the U.S. are older than 40 years, which is a positive sign for home improvement retailers. HD has been the industry leader for some time with the only direct competitor, Lowe’s, which is in deep water this year as it has faced sliding margins and store closures. While Lowe’s haven’t been able to strategically position themselves, Home Depot tried to leverage the advantages of their convenient store locations and deliver a great interconnected experience through their One Home Depot strategy launched in 2018.

MyWallSt operates a full disclosure policy. MyWallSt staff doesn’t currently hold any positions in companies mentioned above. Read our full disclosure policy here.