While headlines paint a bleak picture for brick-and-mortar retail, a handful of savvy players are defying the odds. Forget Amazon’s dominance – and perhaps now Temu’s emerging presence – the truth is, the US retail market is set to boom.
Fueled by a strong labor market, easing inflation, and resilient consumers, this sector is poised for continued growth. Retail sales are increasing as more people shop in stores, and easing inflation is boosting market prospects and profitability.
Wall Street’s misplaced recession fears have created attractive buying opportunities. Here are five physical retailers that are worthy of a spot in most portfolios:
1: Home Depot (HD)
When it comes to home improvement giants, Home Depot (HD) stands tall, serving both DIY enthusiasts and professional contractors through its expansive network of warehouse-style stores.
With a robust online presence and a consistent track record of growing sales and earnings, Home Depot has established itself as a dominant force in the industry.
Home Depot’s business benefits from the less cyclical nature of improvement spending, providing stability even during economic downturns as people always need to maintain and repair their homes.
2: Ulta Beauty (ULTA)
Ulta Beauty (ULTA) isn’t just your average beauty retailer. Sales dipped during the pandemic, but Ulta understands that experience is key. Their in-salon services add value and foster deeper customer connections, driving repeat business.
Additionally, their expanding loyalty program further incentivizes purchases and strengthens brand affinity. Ulta has become more than a store; it’s a destination combining product discovery with personalized in-store salon experiences.
3: Target (TGT)
The discount retail segment is dominated by two rival giants: Walmart (WMT) and Target (TGT). While both offer value-driven products, Target is the more appealing pick.
Target, with its superior valuation, has been named Goldman Sachs’ top retail pick for 2024. Target’s stock currently trades at roughly 20x earnings, while Walmart trades at 30x. As well, Target pays a 2.8% dividend yield, compared to Walmart’s 1.4%.
4: Costco (COST)
Costco (COST) stands out in the retail landscape with its unique membership-based, bulk-buy model. This seemingly unconventional approach has fueled impressive growth, doubling sales and quadrupling EPS in the past decade.
This growth, driven by a loyal membership base and recurring revenue via annual membership fees, is expected to continue and drive future profits.
5: Dollar Tree (DLTR)
In the realm of value shopping, Dollar General (DG) and Dollar Tree (DLTR) reign supreme. Both offer deep discounts, but their strategies and current prospects do differ.
Dollar General has almost 20,000 stores, making it the largest player in this space. Dollar Tree, however, represents a compelling turnaround story with significant upside potential. It operates 15,000 stores across the US, carrying a “five and dime” and dollar store legacy.
Dollar Tree, which has a more attractive valuation than Dollar General, is expected to grow earnings per share over the next three years with the help of margin improvement.
Bottom Line
The retail sector offers investors unique investment opportunities, catering to various investment goals and risk tolerances. Ultimately, the best retail stock for you depends on your individual investment goals.
Seeking stability and reliable returns? Consider Home Depot and Costco. Open to growth at attractive valuations? Ulta, Target, and Dollar Tree offer intriguing options.
