[Editor’s note: This story originally published November 2017. It has since been rewritten, updated with new information and republished.]
It’s that time of the year when investors start thinking about which stocks to buy to benefit from the usual holiday shopping bonanza.
As with every holiday season, there will be a lot of eating and a lot of shopping, both online and off. Estimates suggest that this year’s holiday sales will increase by as much as 4% over last year. With Christmas falling 33 days after Thanksgiving, one more than last year, retailers could deliver better-than-expected financial results come March.
Last year, Amazon.com, Inc (NASDAQ:AMZN) scored a knockout in the fight for holiday bragging rights, capturing pretty much half of all online sales. Amazingly, Amazon won the online battle by delivering packages on average 40% faster than everyone else competing for e-commerce supremacy.
It’s no wonder that AMZN stock is up 34% year to date. Is Amazon on your list of stocks to buy before the holidays? It should be. Specialty retail stocks are also a good suggestion.
Better to purchase the winning retail stocks before the holidays though, not after. To help with that here are my seven stocks to buy before the holidays.
7 Stocks to Buy Before the Holidays: Amazon (AMZN)
Earlier, I mentioned that Amazon’s holiday performance in 2017 was lights-out good. Heading into this year’s month-long sell-a-thon, it appears that Amazon could have an even better holiday than last year, for a couple of reasons.
First, its $13 billion acquisition of Whole Foods is already paying dividends at the high-end grocery store. New data suggests that the lowering of select prices at its stores poached customers from its competitors, increasing traffic by as much as 17%, and brought in more of the high-income customer it’s used to.
Where I think Whole Foods could do well during the holidays is with shoppers who have less disposable income who might splurge at the grocery store if prices were reasonably comparable to the stores they usually visit.
Another catalyst that could drive holiday sales is toys. The bankruptcy of Toys R Us could jumpstart what’s already a very healthy category for the online retailer.
According to analyst Stephanie Wissink, AMZN had $4 billion in toy sales in 2016, 35% of which came in December alone. Toys R Us, which generated 40% of its sales during the holidays, has fewer teeth this year with suppliers holding back shipments. Amazon’s going to take those sales to the bank.
7 Stocks to Buy Before the Holidays: TJX (TJX)
The average holiday shopper is expected to spend $1,007.24 in 2018, 4.1% higher than last year. To make this go further consumers are going to hit the discount stores. JPMorgan Chase analyst Matthew Boss recently told clients that the three major discount stores would see revenues grow by as much as $19 billion over the next four years.
Boss likes Ross Stores, Inc. (NASDAQ:ROST) but I prefer TJX Companies Inc (NYSE:TJX) because it has got a more diversified group of concepts, including Homesense, its new furniture store, and Sierra Trading Post, once an online retailer selling LLBean-like apparel, but is now opening brick-and-mortar locations across the country.
With just 18 and four Sierra Trading Post and HomeSense stores open, respectively, there’s lots of growth over the next four years to earn a big chunk of the $19 billion in revenue growth the JPMorgan analyst alluded to earlier.
Financially sound and less expensive than Ross Stores from a price-earnings perspective, I expect TJX stock to do very well in the first quarter of 2018.
7 Socks to Buy Before the Holidays: Gap (GPS)
We are continuing with the discount theme.
Old Navy is going to attract a lot of customers this holiday season, and if Gap Inc (NYSE:GPS) has its way, it will be, along with Athleta, its athleisure business, the new growth drivers for the company founded by the Fisher family back in 1969.
“There’s nothing to say that Old Navy will be great five years from now,” retail expert Howard Davidowitz told Retail Dive recently.
“But [CEO Art Peck] is trying to identify for the analysts what his growth businesses are. You’ve got a business that’s been going downhill — but by the way, he never said he’s closing The Gap. It’ll still be a multi-billion business, but it’s a shrinking asset. The answer certainly can’t be the high-end business, Banana Republic. When you look at his statement carefully, I thought what he said was totally logical.”
It’s about time that Gap brought Athleta to the forefront. I’ve been pushing the brand since 2011. As for Old Navy, it’s a no-brainer given its price point.
7 Stocks to Buy Before the Holidays: Starbucks (SBUX)
It might seem weird to put Starbucks Corporation (NASDAQ:SBUX) on a list of stocks to buy that will benefit from the holidays, but the world’s largest coffee shop does very well during the holiday as people buy gift cards, stocking stuffers, etc.
Last year, SBUX’s first-quarter revenue (January 1, 2017, quarter end) on a same-store basis increased 2% in the Americas and globally, while overall revenue increased 6% from a year earlier to a record $6 billion. In the first quarter of 2017, same-store sales grew 3% in the Americas and globally while overall revenue increased 7% to $5.7 billion.
While everyone else in retail is doubling down on e-commerce, Starbucks is doing the opposite and that’s what I love about this company. They’re not afraid to do what’s best for the business including shutting down the Teavana stores and abandoning e-commerce.
I look for this move to boost same-store sales during the holidays.
7 Stocks to Buy Before the Holidays: LVMH (LVMUY)
We already know that holiday sales are expected to grow by up to 4% this year with the average shopper spending $1000-plus. However, a lot of the increase is likely to come from high-income consumers.
“[H]ouseholds with incomes less than $60,000 will decrease spending on gifts and entertainment, boosting only their travel spending,” said a new PwC report. “This pattern from our survey results — of high-income households driving spending — reflects broader economic trends in which high-income families have seen the largest income gains.”
So, naturally, I’ve got to include one high-end or luxury retailer in the mix, and no company caters to a wealthy clientele like LVMH Moet Hennessy Louis Vuitton SE (ADR) (OTCMKTS:LVMUY), whose fashion brands include namesake Louis Vuitton, Christian Dior and Fendi.
Other brands that will get a lot of business over the holidays include Sephora, Glenmorangie, Veuve Clicquot, TAG Heuer and its other namesake, Hennessy.
While many retail stocks have suffered in the last 36 months, LVMH is up 47% so far this year, well above the S&P 500. With $47 billion in annual revenue and almost $9 billion in operating profits, LVMH is a company ready for all seasons, especially the holidays.
7 Stocks to Buy Before the Holidays: Lululemon (LULU)
The holiday surprise at Lululemon Athletica Inc. (NASDAQ:LULU) isn’t going to be that a lot of women buy themselves and their significant others tops, bottoms, outerwear, gift cards, etc. The surprise is going to be how many men do.
Personally, I believe Lululemon is Canada’s most significant retail story — ever — if we’re talking on an international scale.
I expect to hear good things come January from Lululemon’s holiday business.
7 Stocks to Buy Before the Holidays: Restoration Hardware (RH)
Usually, I wouldn’t put a retailer best known for furniture on a list of stocks to buy before the holidays because bedroom suites aren’t a big gift item, but I just couldn’t resist.
If you’ve been to the Restoration Hardware (NYSE:RH) in Chicago, the one with the restaurant on the roof, you know what a pleasant shopping experience it is. Well, the company’s hospitality division is opening its second full-service restaurant Oct. 20 at Toronto’s Yorkdale Mall, one of the most profitable malls in North America.
The four-level, 70,000 square foot large format store, part of the company’s RH Gallery, the large-format concept is set to lead Toronto shoppers and diners into the 2017 holiday season with a bang. Same-store sales are up, profits are up, and its RH Members Program which gives you 25% off everything in the store and costs just $100, is also doing well.
Expect RH stock’s momentum to carry on in 2018 with its new Toronto location playing a big part in its holiday success.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.