Despite record-high inflation, supply chain disruption, and increased cost pressures due to rising wages, the retail sector has been one of the better performers in 2022. At this time, many retailers have been easy to pass along their costs to consumers.
The question is how long can that last? Investors will get their first clue when the March 2022 Advance Monthly Retail Report is released on April 14, 2022. However, if you're looking to invest in the sector, it's important to widen your lens. Retail sales slowed sharply in February as opposed to January. However, this is a time when investors have to dive into the report. While some categories are struggling, other categories are outperforming the sector and may continue to do so.
That's the focus of this special presentation. We're taking a look at seven retail stocks that have been solid performers thus far in 2022 and have a solid outlook for the remainder of the year.
Quick Links
- Costco
- Walmart
- Target
- Kroger
- Nike
- Foot Locker
- Macy’s
#1 - Costco (NASDAQ:COST)
Costco (NASDAQ:COST) is trading at the top of its 52-week range. However, there are times when that shouldn’t concern investors too much. We believe this is one of those times. There are a couple of reasons for that.
In the first place, Costco has not been subject to “leakage” as the company increased its subscription price. That’s an important “pass-through” cost because it allows analysts to get a better sense of the company’s revenue and earnings. After all, once consumers commit to the membership for a warehouse club, they are going to use it. That offers the company a predictable revenue stream.
Another reason investors should pay close attention to COST stock is the company’s recent price target and analyst upgrades. Costco has a solid balance sheet that shows revenue and earnings that are steadily growing as well as solid free cash flow. And, the company’s earnings are growing faster than its dividend which the company has increased in each of its last 18 years.
About Costco Wholesale
Costco Wholesale Corporation, together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. The company offers branded and private-label products in a range of merchandise categories.
More about Costco Wholesale- Current Price
- $978.54
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 21 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $1,024.03 (4.6% Upside)
#2 - Walmart (NYSE:WMT)
One of the key factors to consider when choosing retail stocks to buy is digital/e-commerce sales. And while Walmart (NYSE:WMT) may not be the first name you think of in terms of e-commerce, it has made significant strides.
It’s not that Walmart will overtake Amazon (NASDAQ:AMZN) anytime soon. But the company is holding its own and delivering an omnichannel experience that is reflecting the reality of the new normal in retail which includes buying online, pick-up at the store (BOPUS), and completing online orders and delivery through its Walmart+ program.
All of these investments has taken a little toll on the company’s balance sheet. For example, free cash flow is down from pre-pandemic levels. However, that should begin to improve. In any event, it’s no threat to the company’s dividend which, although not the best that investors can find, it has increased for the last 49 years. And there’s no reason to believe that streak will end anytime soon.
About Walmart
Walmart Inc engages in the operation of retail, wholesale, other units, and eCommerce worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores under Walmart and Walmart Neighborhood Market brands; membership-only warehouse clubs; ecommerce websites, such as walmart.com.mx, walmart.ca, flipkart.com, PhonePe and other sites; and mobile commerce applications.
More about Walmart- Current Price
- $95.16
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 31 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $103.58 (8.8% Upside)
#3 - Target (NYSE:TGT)
For investors looking to play the omnichannel trend, there are not many better options than Target (NYSE:TGT). The company was investing in this transformation before the pandemic. And in late 2019, TGT stock began its slow and steady climb upward. That climb accelerated during the pandemic.
And while there’s been a couple of sell-offs, the stock appears to be ready to make another run at its 52-week high. One reason for that is the company’s loyal and committed customer base that should continue to frequent the store in spite of inflation.
Target continues to beat year-over-year revenue and earnings numbers and the company’s free cash flow while down from its record amount in 2021 is still solidly above pre-pandemic levels. And while the company doesn’t support a spectacular dividend yield, Target has increased its dividend in each of the last 51 years which makes it a member of the exclusive Dividend Kings club.
About Target
Target Corporation operates as a general merchandise retailer in the United States. The company offers apparel for women, men, boys, girls, toddlers, and infants and newborns, as well as jewelry, accessories, and shoes; and beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
More about Target- Current Price
- $96.37
- Consensus Rating
- Hold
- Ratings Breakdown
- 11 Buy Ratings, 22 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $132.37 (37.4% Upside)
#4 - Kroger (NYSE:KR)
Moving on from general retailers, we turn our attention to specialty retailers. Consumers notice inflation the most in terms of the gas they put in their cars and the groceries they buy. Kroger (NYSE:KR) has been a stealth stock to buy in 2022. KR stock is up 36% in 2022 easily outpacing the broader market.
One reason for this, argues an analyst from Bank of America (NYSE:BAC) is the grocery chain’s ability to pass along costs to consumers. It’s also an option for consumers who are concerned about food shortages. However, Bank of America is alone in its bullish outlook and there is some concern that KR stock’s best growth is behind it.
But even if inflation pressures ease, there’s still a likelihood that the economy is going to be in a recession. But if that occurs, it would be a bullish catalyst for Kroger which is a great choice as a defensive stock.
About Kroger
The Kroger Co operates as a food and drug retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; and multi-department stores provide apparel, home fashion and furnishings, outdoor living, electronics, automotive products, and toys.
More about Kroger- Current Price
- $70.37
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 6 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $66.50 (-5.5% Downside)
#5 - Nike (NYSE:NKE)
Nike (NYSE:NKE) is proving that premium brands are frequently worth their premium valuation. The company’s products remain on Gen Z’s wish list of products. After delivering a stellar earnings report, NKE stock surged higher. But as of this writing, it’s given some of those gains back. Nevertheless, with the stock trading near the low end of its 52-week range, it may be more attractively priced with a 33% upside according to analysts.
Nike continues to show some strong fundamentals. The company’s income and free cash flow are larger than they were prior to the pandemic. As a recent MarketBeat article noted, the company’s gross margin in its most recent quarter grew 2.8%. And one reason why the company is doing this is because of strong growth in digital sales. This is evidence of the company’s loyal following and a reason to believe that the company can continue to replicate its sales growth.
About NIKE
NIKE, Inc, together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, accessories, and services worldwide. The company provides athletic and casual footwear, apparel, and accessories under the Jumpman trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks.
More about NIKE- Current Price
- $57.34
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 15 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $82.26 (43.5% Upside)
#6 - Foot Locker (NYSE:FL)
Investors who are looking for a way to play the athleisure trend without picking a specific brand can set their sights on Foot Locker (NYSE:FL). The retailer’s stock was holding its own in 2022 but gapped down sharply after its February earnings report. Some may put the blame on revenue that met but didn’t exceed expectations. However, the real culprit for such a sharp drop was likely a flight to safety. The company reported earnings at approximately the same time Russia’s war on Ukraine commenced.
There are some concerns about the company’s future growth prospects. Some of those concerns may abate if the current supply chain difficulties ease. However, even based on those revenue projections, FL stock looks undervalued at its current price. The company has invested in its digital capabilities. And that should be a strong catalyst for the stock moving forward.
About Foot Locker
Foot Locker, Inc, through its subsidiaries, operates as a footwear and apparel retailer in North America, Europe, Australia, New Zealand, Asia, and the Middle East. Its brand portfolio includes Foot Locker, a brand comprising sneakers and apparel; Kids Foot Locker, which offers athletic footwear, apparel, and accessories for children; and Champs Sports that operates as a mall-based specialty athletic footwear and apparel retailer.
More about Foot Locker- Current Price
- $12.97
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 8 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $21.38 (64.8% Upside)
#7 - Macy’s (NYSE:M)
The last stock on our list of retail stocks to buy is Macy’s (NYSE:M). The retailer posted unquestionably strong earnings in its fourth-quarter earnings report. Some of the highlights included a year-over-year sales increase of 28% and a whopping increase of nearly $500 million in adjusted net income at $745 million which calculates to $2.45 per diluted share. The company also ended the quarter and year in a strong cash position.
One question for Macy’s was whether they could grow digital sales. The company was late to adapt, but they are showing growth in that area. The big question now is if they can repeat that success in upcoming quarters. Revenue is expected to be flat in 2022.
And that may be reflected in the sentiment of institutional buyers. Although buyers have outnumbered sellers, the bearish sentiment appears to be a bit stronger. However, the company is sporting a P/E ratio of 5.16 which makes it a bit undervalued relative to the sector.
About Macy's
Macy's, Inc engages in the retail of apparel, accessories, cosmetics, home furnishings, and other consumer goods. The firm's brands include Macy's, Bloomingdale's, and Bluemercury. It offers men's, women's, and children's apparel, women's accessories, intimate apparel, shoes, cosmetics, fragrances, as well as home and miscellaneous products.
More about Macy's- Current Price
- $11.59
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 11 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $14.18 (22.4% Upside)
The retail sector still faces some unknowns. Inflation is expected to dampen some consumer appetites. And that slowing may have started to be reflected in February retail sales. The 0.3% growth in sales was a marked slowdown from January's 4.9% growth.
However, any consumer hesitancy may be offset by a desire to travel and re-engage with activities that were largely curtailed the last couple of summers. With that as your guide, not every company will do well. But if you have a plan, there are several stocks that are expected to outperform the rest of the sector.
If you want exposure to the retail sector, but don't want to buy individual stocks, there are a few quality retail sector ETFs. Some of the names that investors can look for include the SPDR S&P Retail ETF (NYSEARCA:XRT), the Amplify Online Retail ETF (NYSEARCA:IBUY) and the ProShares Online Retail ETF (NYSEARCA:ONLN).
More Investing Slideshows:
