The retail sector has long been a volatile one as fickle consumers and a quickly evolving landscape keep the industry on its toes. With the market at all-time highs, it’s difficult to find bargains anywhere. But, retail stocks include a few winners that look likely to deliver in the year ahead.
The holiday season is always important for retailers, and the seasonality always appears to provide a boost for most retail stocks. The big players in this area are obvious, but there are a few hidden gems that investors should consider moving forward.
With earnings on the horizon, now is a risky time to buy. However, if earnings meet the mark, a sizable bump could be coming for these four retail stocks.
Let’s take a look.
Retail Stocks to Buy: CVS (CVS)
My top choice among retail stocks this year is pharmacy retailer CVS Health (NYSE:CVS). The company has been quietly making a comeback over the past year as it completes a major strategy shift. Though CVS is probably best known for its retail pharmacies and walk-in clinics, the firm is also a pharmacy benefits manager and a health insurance company — making it a one-stop-shop for all things healthcare.
The synergies that combination offers should drive CVS stock higher well into the future. In the near-term, CVS’ Health Hubs should drive growth and improve investor sentiment.
So far, data from the company’s limited Health Hub locations show significant store traffic increases. As CVS rolls out its Health Hub initiative to 1,500 stores over the course of the next year, it should drive even more foot traffic and increase the potential for CVS stock.
Not to mention, CVS is one of the few stocks you can buy on sale right now. The stock trades at nearly 11 times its forecasted earnings, and offers a 2.6% dividend yield.
Bed Bath & Beyond (BBBY)
Bed Bath & Beyond (NASDAQ:BBBY) had an interesting year last year, but in 2020, the company looks ripe for a total tun around. The main reason investors are picking the beaten-down retailer up now is the firm’s new CEO Mark Tritton. Tritton comes with a great deal of experience with turning retailers around as he is partly responsible for Target’s (NYSE:TGT) comeback.
Since arriving at Bed Bath & Beyond, Tritton has been on a cost-cutting mission and he cleaned house at the executive level. His guns-blazing attitude toward creating a leaner, more efficient organization is exactly what BBBY needs.
He’s taking a page out of Target’s playbook by working to launch more private brand labels. This change comes in order to compete with his former employer, as well as big-names like Amazon.
Tritton’s track record of success and wealth of experience have buoyed BBBY stock. But if his efforts start to pay off, there could be an even larger rally ahead.
Speaking of Amazon (NASDAQ:AMZN), it would be impossible to talk about retail stocks to buy without mentioning the 10,000 pound gorilla in the room. Not only is Amazon likely to report impressive figures for the holiday shopping quarter, but you can currently pick up shares at a discount.
Back in October when Amazon’s share price was roughly $150 cheaper, I recommended buying the e-commerce giant. Despite the company’s 8% rise since the beginning of October, Amazon still makes for a good buy at current levels.
Investors have been spooked by the firm’s spending spree. Free cash flow has been steadily declining, but as InvestorPlace contributor Mark R. Hake put it, “the company is giving up cash flow now in order to have higher cash flow in the future.”
With that in mind, investors might want to use this opportunity to pick up shares while they’re on sale. Hake estimates that AMZN is worth upwards of $2,636 based on a sum-of-the-parts analysis.
While the share price isn’t likely to make it quite that high anytime soon, I wouldn’t be surprised to see Amazon make it back over the $2,000 price point — a nearly 7% increase from where it’s trading today.
Restoration Hardware Holdings (RH)
Restoration Hardware (NYSE:RH) is a good pick if you see President Donald Trump’s China trade deal continuing to advance in 2020. The company sources around 40% of its products from China, so the tariffs were problematic from a profit standpoint.
RH decided to pass those costs on to consumers with price increases. This helped the company beat expectations in the third quarter and shrug off negativity regarding the trade deal.
Now that Phase One has been signed, it’s unclear exactly when Trump will lift the remaining tariffs or how that will impact RH, which has diversified away from China. No matter what, though, progress between the U.S. and China would be a good thing for RH stock.
Plus, RH is working to expand its stores in Europe this year. Bears have long criticized RH for operating only in North America, but the firm started making moves to expand its European footprint in 2019.
As of this writing, Laura Hoy was long CVS and AMZN.