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Top Retail Stocks - Retail Stocks to Buy Now

Posted on Monday, December 9th, 2019 by Matthew Sweeney

Top Retail Stocks - Retail Stocks to Buy Now

Retail stocks are publicly traded securities issued by retail companies. These businesses sell products or services directly to consumers for the purpose of making a profit. Typical retail verticals include food, apparel, consumer staples, and consumer discretionary goods.

Top Retail Companies in the World

Analysts praise these particular companies for their competitive advantages, such as consumer confidence, phenomenal retail sales, regularly strong earnings, and a solid business model. If you’re looking around Wall Street for retail stocks to buy, these particular stock picks are some of the best on the stock market.

Retail Industry

Once upon a time, stores were individually owned, family-run operations. But after the industrial revolution, select entrepreneurs in Europe and America created department stores, where consumers could pretty much find everything under one roof. The same-store sales success of these enterprises launched the idea of a retail chain, where a single company might own multiple stores selling the same products and follow certain policies in terms of style and management.

In the 1930s, franchise models were developed, where individuals could open their own store under the umbrella of the parent company, assuming their identity. With franchise and corporate-owned options rapidly expanding, retailers grew quickly throughout the 20th century, some of them ballooning to thousands of locations.

Today, we have come to expect that every city in America will have certain fixtures, such as Walmart, Walgreens, and Home Depot. Other retail venues are more regionalized, especially in the supermarket sector. Still, there are thousands of retail businesses across the US that are individually owned, operating smaller stores in a mall or urban center.

For the most part, businesses in the retail industry are concerned with selling their goods or services directly to consumers. Whether a company focuses on apparel, construction equipment, or medicine, these products are purchased from wholesale suppliers. The products are then marked up and resold to the public in order to create profit and maintain business operations like employee payroll and marketing costs.

The internet significantly changed the face of retail. Large marketplaces like Amazon have proven to be enormous disruptors to the status quo. Select online marketplaces have even outperformed traditional retail linchpins, some of which have seen a sharp decline. Many companies have fallen by the wayside entirely, such as Blockbuster Video and Borders Books.

New companies have sprung up, and while many popped with the dot-com bubble, others have turned out to be some of the best growth stocks. The growth of e-commerce, comparable sales statistics with brick-and-mortar businesses, and related consumer sentiment around cannot be ignored when figuring out which stocks to buy in the retail sector.

Overall, the retail industry can be hit-or-miss for investors. Companies are going through the growing pains of a world adjusting to e-commerce, and the ever-shifting landscape of new startups around the world, some of which have become quite massive. Of course, certain players in the retail industry will be hard hit when consumer spending dips due to economic downturns. But when times are good, some retail companies can pay out decent dividends.

Top Retail Companies in the World

Trading or buying-and-holding these top companies can yield big earnings for consumers turned investors.

Amazon (NYSE: AMZN) is an e-commerce and digital streaming platform that is actually the largest online marketplace in terms of market capitalization and revenue. The brainchild of Jeff Bezos started out as a place for buying and selling used books, but within the last few decades, it’s become a place to buy just about anything, including services and content (like music, movies, and TV shows).

Amazon has been accused of invasive consumer surveillance, a cutthroat work culture, and manipulating the marketplace—but despite this bad press it continues to grow in value. Amazon has already surpassed Walmart in 2015 as America’s most valuable retailer in terms of market cap. Amazon’s most recently oft-discussed move involved the purchase of Whole Foods, a grocery brick-and-mortar retailer that caters to consumers with a taste for organic foods; pundits are wondering what business Amazon has its eyes on next.

Walmart (NYSE: WMT) is number one on the Fortune 500 list of the world’s biggest companies, with runner-up ExxonMobil earning around just over half the revenue that Walmart earns (Walmart reportedly earned $514 billion, while ExxonMobil earned $290 billion). Though Walmart was originally geographically limited to the South and Midwest, by the late 1980s, it had already become the most profitable domestic retailer and the largest in terms of revenue. Today, Walmart operates around 11,500 stores under 55 different subsidiaries in more than two dozen countries. Though Walmart has a reputation for providing economy-quality products, it caters to the largest demographic in terms of spending power with a massive domestic footprint.

Based in Minneapolis, Target (NYSE: TGT) it the eighth-largest retailer in the United States. This retail business was founded as Goodfellow Dry Goods in 1902. The first Target store opened in the 1960s and quickly expanded nationally in the 1980s. Today, its red-and-white circular symbol is recognized everywhere. In 2013, Target suffered from a major security breach in which consumer credit card data was stolen. Since then, it has revitalized its image and popularity as an urban, chic, and affordable place to shop. In contradistinction to Walmart’s focus on low prices, Target constantly engages in lifestyle-driven visual marketing that promotes a certain look facilitated by their in-house brands, catering to the needs and wants of younger, image-conscious consumers. Target operates around 1,800 stores throughout the United States and maintains a healthy online retail operation.

Costco (NASDAQ: COST) operates as a wholesaling warehouse club, catering to retail consumers who purchase a membership. Costco Wholesale Corporation is ranked #14 on the Fortune 500 list of the world’s largest companies by revenue. Based in Seattle, Costco opened its first warehouse in 1983.

Today, Costco owns 776 warehouses throughout the world, with operations in the United States, Canada, Mexico, the United Kingdom, Spain, France, and China. Costco specializes in consumer staples, furniture, electronics, and appliances. They are also one of the world’s largest distributors of food and the largest purveyor of red meat, chicken, wine, and organic food.

Macy's (NYSE: M) is one of the original department stores that populated the urban landscape of 19th-century America. Though a number of entrepreneurs started department store chains, Macy’s has been one of the few to survive, especially against a backdrop of shifts to economy mega-stores like Walmart and online venues like Amazon. In fact, Macy’s is still one of the top-ten department stores in the U.S. (just behind Dillard’s, Kohl’s, and Belk), generating annual revenues near $25 billion.

With almost 600 stores in operation around the US, Macy’s has successfully built up strong customer loyalty with an image of affordable luxury, placing it above mid-range consumer retail options like Target and Walmart.

Walgreens (NASDAQ: WBA) is a subsidiary of an international holding company Walgreens Boots Alliance. It is the second-largest domestic pharmacy chain behind CVS, with over 9,200 stores in all 50 states. Founded in 1901, Walgreens specializes in filling drug prescriptions, photo development, and selling consumer staples like toiletries and over the counter medication.

Walgreens stores were once connected to grocery stores, but the current model favors standalone venues with a corner door, similar to the original drugstores of the 19th and 20th centuries. Many stores also feature a drive-thru pharmacy window. Walgreens Boots Alliance reported annual revenue of $131 billion in 2018. While Walgreens is primarily the American arm of the business, Alliance Boots operates pharmacies in the United Kingdom and Switzerland (the two companies merged in 2014).

Tesco (LSE: TSCO) is a UK-based grocery and general merchandise retailer. Tesco is actually the third-largest retailer globally in terms of gross revenue, and ninth in terms of net revenues. Tesco is the United Kingdom’s leading grocer in terms of market share. Tesco was founded in 1919 as a group of market stalls. In just two decades, it has expanded to 100 stores.

Today, Tesco operates an estimated 2,500 stores in seven countries throughout Europe and Asia. Tesco has branched out from food to sell other goods, such as books, apparel, furniture, and toys, along with gas, software, and telecommunication services.

Tesco has attempted to expand its vertical sales power by creating greater diversity in terms of product quality and price, with a range of levels from Tesco Value to Tesco Finest.

Home Depot (NYSE: HD) is America’s largest home improvement retailer. Its chain of mega-sized stores services both DIY customers in search of remodeling supplies, as well as professional contractors building new homes. Home Depot is ranked the 23rd largest American company in terms of revenue, according to Forbes. With nearly 2,300 locations, Home Depot averages six figures in square footage per store, with the largest stores coming in around 200,000 square feet in Anaheim (CA) and New Jersey.

Home Depot has also expanded outside the US, with 182 stores in Canada, 120 stores in Mexico, and a handful of stores throughout South America. Attempts to enter the United Kingdom and China markets have not been profitable. Home Depot has adopted a wait-and-see attitude to gauge the Chinese market—where consumers are not so interested in the do-it-yourself retail sector—instead, opting for a fully completed service.

Alibaba (NYSE: BABA) is the Chinese version of Amazon, co-founded by Jack Ma. Alibaba is the 59th largest company in the world, and the second Asian company to surpass $500 billion in value (Tencent was first). Alibaba is one of the 10 most valuable companies in the global economy. Like Amazon, Alibaba is an online retail venue, but it has also expanded into other offerings, such as cloud computing, electronic payment, and other B2B services. Since 2015, Alibaba has surpassed Walmart, Amazon, and eBay combined in terms of profit from online sales.

One of Alibaba’s most popular components is AliExpress, where consumers from around the world can shop for a variety of goods at low prices. Alibiba.com provides a platform for business owners and online retailers to find suppliers for items made in China—whether they want to sell handbags or an entire chemical plant.

Alibaba is also the parent company for Taobao and Tmall, popular C2C and B2C venues, respectively. Alibaba has expanded into Southeast Asia by buying a controlling interest in Singapore-based e-commerce retailer Lazada, as well as opening a chain of supermarkets that offer online ordering and delivery within 30 minutes. Investors are still waiting to see what will become of the ongoing tariffs and trade war.

Aldi is not (yet) publicly traded, but it might be a good company to watch closely. This German chain has over 10,000 stores in 20 countries and has been in business since 1946.

Aldi is split into two different companies—Aldi Nord (North) and Aldi Sud (South)— and both companies operate stores in the United States at 1,600 total locations. Aldi Nord also operates in Denmark, France, Belgium, Holland, Spain, and Poland. Aldi Sud operates stores in the United Kingdom, Ireland, Italy, Austria, Australia, and China—demonstrating that Aldi is a truly international operation.

The Aldi culture is one of no-frills, simple presentation, and discounted items. If you’re not familiar with the company yet, you may be familiar with their wholly-owned subsidiary, Trader Joes. Only time will tell if the company will go public, but for now, Aldi is privately held and family-owned.

Clothing Stocks

The apparel industry is known for its overall consistency. However, within the industry, the top players can change as consumer tastes shift. The biggest companies are equipped to fund marketing strategies that can keep up with the times. However, some outfits, such as Sears, will still end up going out of business.

Some of the traditional players in retail apparel, such as Macy’s, have seen increased competition from mid-price or discount venues like Walmart and Target—not to mention internet disruptors like Amazon and other online fashion retailers. However, companies in the apparel business are often able to capitalize on brand loyalty and retain a core following of image-conscious consumers who like that particular style.

Overall, clothing stocks could be said to hover at the border of the consumer discretionary sector, which is made up of businesses that do well when times are good, and do poorly when times are bad. People may always need clothes, but they’ll just keep on wearing the clothes they have if they don’t have extra money to spend on the latest fashions. That said, clothing stocks can be somewhat cyclical. For example, some of them only jump during the holiday shopping season. Even so, many clothing stocks have a longstanding history and proven track record of success throughout the year, not just when consumers are holiday shopping.

Grocery Stocks

Food is a consumer staple, which makes grocery stocks some of the more stable offerings in the retail industry. Additionally, while online e-commerce has disrupted the consumer discretionary markets, purchasing food online has not really taken off (yet). If anything, people still like to shop for food in person or rely on the grocery store’s specific delivery service—which eliminates competition from the online sector.

That said, grocery stocks will probably not be the most active stocks, but if you’re looking for retail stocks that are closer to the stable end of the scale, these might be the stocks for you—especially if you have a dividend investing strategy. The dividend yield for grocery stocks tends to be slightly higher than that of the market overall. Some companies, such as Village Supermarket Inc. and Weis Markets, have dividend yields of over 3 percent, which can bankroll into a sizeable amount every quarter if you have enough holdings. Many of these companies are not overvalued and have a good price to earnings ratio.

Retail ETF

The retail sector is fairly diverse, with some companies in the mostly stable consumer staples market, and others in the consumer discretionary market. Even large companies like Home Depot can be tied into other markets like housing. With all that complexity, it can be hard for the average retail investor to profit from building their own portfolio of retail stocks in search of the biggest stock gainers. Instead, they might benefit from buying a share of an exchange-traded fund, which is sort of like a mutual fund that’s sold in shares like a stock, but managed by a competent stock advisor.

The SPDR S&P Retail ETF (NYSE: XRT) is a 13-year-old fund spread out over diverse areas of retail including grocery, apparel, automotive, computers and electronics, and specialty stores. If you’re looking to explore online retail investments, the Amplify Online Retail ETF (NASDAQ: IBUY) started in 2016 and is an index that tracks companies earning at least 70% of their income from internet commerce. Investors with an eye for globally-leveraged profits should not pass up the Global X MSCI China Consumer Discretionary ETF (NASDAQ: CHIC), which contains familiar holdings like Alibaba and JD.com Inc.

The ratio of different companies and company types will vary from ETF to ETF. Some ETFs will have a ratio skewed more toward large brick-and-mortar establishments with a longstanding history in the retail industry, while others will be focused on the growth of e-commerce. Of course, the money managers will try to make sure the EFT does well every quarter, and not just when it’s shopping season.

Top Retail Stocks

The retail sector is a fairly diverse one. There are many solid companies and types of investments that will appeal to a variety of investors, depending on their investment goals and levels of risk tolerance. The decision to invest in retail does not have to be a trade-off between earnings and stability because the sector is so diverse.

Investors engaged in day trading may be able to profit from some of the more volatile cyclical securities that dip above and below the industrial average. Investors can capitalize on the meteoric sales growth of a retail startup—just imagine how much profit initial investors in Amazon could have made by now. Alternatively, long term investors looking to capitalize on consistent dividend earnings paid out from a robust gross margin will appreciate some of the more stable stocks in the retail industry, such as groceries and consumer staples.

From food and pharmaceuticals to fashion and appliances, retail companies sell their goods directly to consumers. They can pass the profits on to their investors in the form of dividends. The retail industry may be somewhat cyclic, but certain players in the retail game, such as Amazon, Walmart, and Alibaba, are large enough to remain stable year-round. This makes them attractive choices to stabilize any portfolio and generate good earnings.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Amazon.com (AMZN)$1,861.64flatN/A82.45Buy$2,193.67
Walmart (WMT)$114.37flat1.85%22.83Buy$123.45
Target (TGT)$114.32flat2.31%18.26Buy$119.40
Costco Wholesale (COST)$310.51flat0.84%36.83Buy$303.48
Macy's (M)$16.78flat9.00%5.41Hold$15.94
Walgreens Boots Alliance (WBA)$52.04flat3.52%12.79Hold$59.07
Tesco (TESO)$3.70flatN/AN/AN/AN/A
Home Depot (HD)$232.00flat2.34%23.06Buy$238.92
Alibaba Group (BABA)$213.75flatN/A25.66Buy$228.42

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