An overall healthy holiday shopping season is right around the corner, and retailers that have had a generally lackluster year thus far are more than ready to welcome a resurgence in spending, offering a handful of ideal retail stocks to buy now.
Holiday spending is expected to increase 3.9% from last year’s season, according to data released Wednesday from FTI Consulting.
While the increase includes the traditional holiday shopping frenzies, such as the Black Friday and Cyber Monday rushes that should boost retail stocks, the increase is also tempered from the 5.2% increase 2014 spending drew over 2013.
Consumer confidence is fairly high but off its peaks from earlier this year, while recent wage level increases have not been enough to heat up consumer spending. But the holiday shopping season is a prime time to perhaps restore some spending luster.
The retail industry has had a robust past year, with the SPDR S&P Retail ETF (XRT) up more than 12% from October 2014, but the retail stocks sector is down 4% year-to-date, leaving plenty of room for a holiday rebound on the expected sales increases, so long as the economy doesn’t suffer any significant setbacks before then.
Here are four ideal larger retail stocks to buy for what what’s likely to be a holiday shopping season that FTI Consulting describes as “neither encouraging nor discouraging.”
Hot Holiday Retail Stocks: JCPenney (JCP)
JCPenney (JCP), in the midst of a turnaround after having been on the brink of bankruptcy, is among the better retail stock plays this season, primarily for its ample room to return to being a competitive department store.
Known for its more affordable clothes, JCPenney just landed a new chief merchant officer who can give the brand a boost with a fresh fashion perspective.
Now, JCPenney is targeting the younger teen market with a new brand, Belle & Sky, with hopes to take market share from Forever 21 and H&M (HNNMY).
JCP stock is up 49% since the start of this year, in contrast to Macy’s (M), Kohl’s (KSS) and Sears (SHLD), which are all down more than 20% year-to-date.
Clearly, the company’s efforts to reduce costs with moves like closing 40 of its 1,060 stores this year are paying off.
Hot Holiday Retail Stocks: DSW (DSW)
Sure, shoes aren’t exactly the number one holiday gift choice, but Columbus, Ohio-based DSW (DSW) can welcome its own seasonal traffic with consumers stocking up on winter footwear.
DSW stock, down 32% year-to-date, is offering investors low prices for a company with a strong underlying financial foundation. DSW stock’s valuation of 13.7 is a bit more of a bargain than other shoe retailers, including Foot Locker (FL) with 17.8 and Shoe Carnival (SCVL) with 16.
Competitor Finish Line (FINL) does offer a lower 11.3 valuation.
DSW stock has been on a slide since about August, when many shoe retailers were reporting disappointing sales that triggered sector-wide sell-offs. But these new three-year lows are offering an ideal entry point for investors before the holiday season.
After all, DSW has been reporting increases in profits and revenue, including second-quarter earnings of 42 cents per share, up from 37 cents a year prior. Second-quarter sales of $627 million were short of the Street view but up from $587 million a year prior.
DSW promotes and sells its own private-label brands like The Audrey Brooke, Kelly & Katie, Lulu Townsend and Poppie Jones, as well as a slew of well-known brand names.
It’s expanding into Canada with a partnership with Town Shoes.
Hot Holiday Retail Stocks: Target (TGT)
Target (TGT) not only offers a perfect one-stop location for holiday shopping with its diverse array of clothing, electronics and toys, but its stock is also a good buy now.
Just in time for the holidays, Target recently said it will offer Apple‘s (AAPL) Apple Watch in stores by Oct. 25 — one of many ideal holiday gifts Target promotes.
Target is even gaining competitive traction in the online shopping sphere after it announced it would start matching online prices of 29 competitors like Wal-Mart (WMT), Costco (COST) and Best Buy (BBY).
TGT stock has had a volatile year, with shares now up 3.7% year-to-date, but trading at near $79 per share, still off their 52-week peak of $85.81.
In the past year, TGT stock has risen 30%, generally positive momentum that can easily resume with a healthy holiday shopping season.
Hot Holiday Retail Stocks: Nordstrom (JWN)
Seattle-based Nordstrom’s (JWN) some 118 upscale department stores often serve as mall anchors, and of course, malls tend to draw impressive holiday crowds.
Nordstrom’s is also a bargain buy now thanks to recent sell-offs. JWN stock is down 13.6% year-to-date, trading near its 52-week low of $66.81, but with plenty of room to rebound.
On a cautionary note, while JWN stock prices are low compared to their own trading history and potential, they are a bit higher than their competitors in terms of valuation. JWN stock’s price-to-earnings ratio is 18.1 versus Dillard’s (DDS) with 11.6 and Macy’s with 12.6.
But Nordstrom is garnering positive attention from Street firms like Citigroup, which initiated coverage on JWN stock Wednesday with a “buy” rating and a $92 price target.
As of this writing, Rebecca McClay did not hold a position in any of the aforementioned securities.
