Do These 7 Retail Stocks Make the Grade?

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Retail stocks - Do These 7 Retail Stocks Make the Grade?

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Although autumn has only been upon us for a couple weeks now, retailers around America are already stocking the shelves with Christmas decorations in preparation for their busiest time of year. Love it or hate it, the holiday shopping season is make-or-break for the retail industry and this year is will be no different.

If you want to make more money than you’re planning to spend, though, now is the time to put down your Pumpkin Spiced Latte and pick up some retail stocks. 

From Bed Bath and Beyond (NASDAQ:BBBY) to Walmart (NYSE:WMT), here’s a look at how some of your favorite retailers rank this holiday shopping season.

Bed Bath and Beyond (BBBY)

BBBY Stock

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The list starts, unfortunately, with a dud. Home goods retailer Bed Bath and Beyond has had a messy year that looks unlikely to turn around. BBBY stock is down more than 50% from its April highs and the share price has shed 90% from its 2014 heyday. That’s because BBBY got caught in the retail apocalypse and failed to make the strategic moves necessary to climb back out. Instead we’re watching the store crumble slowly and steadily. 

BBBY has lost its customers to online furniture retailers like Wayfair (NYSE:W) as well as big-box stores like Walmart and Target (NYSE:TGT), whose home goods have picked up steam in the past few years. That has left BBBY with negative comps, tight margins, and sluggish sales.

Unfortunately, the firm isn’t in the position to weather the storm either — BBBY is lugging around a debt load of $1.59 billion. From here, it looks like the stock is heading straight to zero. I’d stay far, far away.

Grade: F

Walmart (WMT)

Walmart Stock

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Over the past year we’ve seen an impressive transformation from WMT stock. The firm went from being a troubled retailer hit hard by Amazon’s (NASDAQ:AMZN) advances, to a pillar of strength that is thriving in the aftermath of the shake-up in the retail space. Now, WMT stock is trading at all-time highs, but that doesn’t stop me from giving it high marks.

Warren Buffett famously advised that it’s better to buy a wonderful company at a fair price than a fair company at a wonderful price, and that’s exactly how investors should view Walmart. If you bought it six months ago, then you got yourself a bargain, but even now at $118 per share WMT is a buy.

The firm is well-prepared to blow the holiday quarter out of the water with beefed-up online offerings, new shipping options, and an ever-growing grocery arm. Plus, Walmart is dipping its toe into the healthcare space with new clinics, which opens the door for accelerated long-term growth.

Grade: A

Target

TGT Stock

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Much like Walmart, Target is on-track for not only a stellar holiday quarter, but a bright long-term future as well. With the trade war weighing on the sector in general, TGT stock has the upper hand because of its size and financial strength. As smaller retailers close their doors and struggle against tariffs, Target has a huge opportunity to gain market share. So far, TGT execs appear to be taking full advantage of that opportunity as well.

Not only has Target built out its online and in-store offerings, the firm has also upped its delivery options. On top of that, TGT rolled out a new loyalty program in a bid to keep consumers from shopping around, a tactic that could pay off in Q4 this year.

I’d definitely put TGT stock on par with Walmart, but Target’s lower valuation and 2.47% dividend yield give it a slight edge over WMT.

Grade: A+

Macy’s (M)

Macy's Stock (M)

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Macy’s (NYSE:M), like BBBY, has struggled to recover following the shift from brick-and-mortar shopping to e-commerce. However, unlike its nearly bankrupt peers, M stock has been able to move in the right direction which makes it an option for value investors comfortable with a high degree of risk.

Over the past year M stock has shed half of its value and has been one of the worst performers in the retail space. In order to move its inventory, Macy’s has had to offer deep discounts that came at the expense of margins, but even the rock-bottom prices couldn’t move the needle on sales growth. 

However, Macy’s is down but not out. The firm is working through a new cost-savings plan that is seen saving the store more than $400 million each year for the next 2-4 years. Plus, its digital sales have shown consistent growth and we have yet to see the impact of some of its strategic acquisitions. There’s also the added bonus that the firm pays a 9.9% dividend yield and that its Q4 comparisons should be easier as a distribution center fire last year hurt the firm’s results.

Grade: C-

Tanger Factory Outlets (SKT)

Tanger (SKT)

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Speaking of cheap stocks with juicy dividends, retail REIT Tanger Factory Outlets (NYSE:SKT) is hard to overlook right now. SKT invests in shopping centers around the U.S., which should raise a red flat since traffic in shopping centers is on the decline. As you’d probably expect, SKT is struggling to grow its income in the current environment, but the firm also has a lot of potential.

For one thing, SKT has been streamlining its portfolio and offloading its less-profitable assets. Right now the firms properties have an occupancy rate of 96%, a stellar figure considering that it operates in the retail space. The fact that Tanger’s properties are largely outlet malls should help insulate it from some of the traffic decline. With a yield of 9%, SKT doesn’t come without its risks, but it could be a worthwhile value play.

Grade: C

Dollar General (DG)

Dollar General (DG)

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With an economic downturn on everyone’s mind right now, it would be irresponsible not to consider a discount retailer. Dollar General (NYSE:DG) is one such firm whose future looks bright whether the economy takes a nosedive or not. The good thing about low-cost retailers like DG is that they sell consumer staples at low prices, so come a recession they won’t be hit as hard as a store like Target.

With that said, DG has done a lot to set itself up for success if macroeconomic conditions are favorable as well. The firm has been revamping many locations’ layouts to include cold beverages and fresh food. That, combined with its decision to become a FedEx (NYSE:FDX) drop-off point could drive sales as well as traffic by getting new people in the doors.

Of course, DG could be hurt by increasing tension between the U.S. and China, but so far management appears to have a solid future plan in place.

Grade: A-

Lululemon (LULU)

Lululemon (LULU)

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Athletic apparel maker Lululemon (NASDAQ:LULU) could be a profitable growth stock over the next few years if its long-term bets pay off. LULU’s footprint is currently relatively small, with the retailer operating fewer than 300 stores in the U.S. and even fewer abroad. That means there’s huge growth potential. The brand is pushing its way into footwear as well as personal hygiene and menswear, a move that could prove profitable over the next few years.

With that said, just because there’s an opportunity to expand doesn’t mean it’s a foregone conclusion. First of all, there’s a lot of competition in the altnheticwear space which could cause some headwinds for LULU. More importantly, though, is the fact that athleisure is having a moment in the sun right now. People like wearing sports clothes during the day whether they’re exercising or not. It’s difficult to predict whether or not that trend will continue long-term, but investors should keep in mind that fashion is fickle. 

Grade: B+

As of this writing Laura Hoy was long AMZN.

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2019/09/do-these-7-retail-stocks-make-the-grade/.

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