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7 Retail Stocks That You Don’t Want In Your Cart

retail stocks - 7 Retail Stocks That You Don’t Want In Your Cart

Source: Shutterstock

The economic numbers keep rolling in and they continue to look good. Jobless claims are falling. Hiring demand is rising. There’s money in the system.

It’s all very attractive. But that’s what we’re seeing right now. The market isn’t really interested in right now. It’s looking at right now and making predictions on six months or a year from now.

And right now, what it’s telling us is that e-commerce is part of our economic reality. Stores that rely on foot traffic are going to see more challenges, as shoppers now are willing to buy online and spend their free time doing something other than driving to stores.

It’s not all good news for retail stocks as we move forward. They may recover from the pandemic, but they may not be great performers in an easy money economic recovery.

These are the seven retail stocks you don’t want in your cart moving forward:

  • Dollar General (NYSE:DG)
  • Dollar Tree (NASDAQ:DLTR)
  • Ralph Lauren (NYSE:RL)
  • Ross Stores (NASDAQ:ROST)
  • Walgreens Boots Alliance (NASDAQ:WBA)
  • Walmart (NYSE:WMT)
  • CVS Health (NYSE:CVS)

Retail Stocks to Avoid: Dollar General (DG)

Dollar General (DG) store front with yellow store sign, midday

Source: Jonathan Weiss / Shutterstock.com

If you live beyond the suburbs of major cities, then you have seen more than a few Dollar General stores. It has more than 16,000 of them in 45 states.

In rural America, DG is about as commonplace as fields of corn or soybeans. It’s the go-to store for just about anything you need that doesn’t need to be refrigerated — from wrapping paper to groceries to motor oil.

And, all the items are very well priced. That’s what made DG such a major player after the 2008 market meltdown. It was a convenient place to buy stuff cheap when money was tight.

But all the money the government has pumped into the system to keep the economy afloat, combined with the lockdowns over the pandemic have moved consumers online.

Now DG has to recover from the pandemic and regain business. That’s going to be tough now that consumers are frequenting the virtual storefronts of digital retailers.

The stock is basically flat year to date, and it isn’t in a strong position to regain a lot of ground.

This stock gets a Portfolio Grader ‘D’ rating.

Dollar Tree (DLTR)

A Dollar Tree store (DLTR) during the day

Source: digitalreflections / Shutterstock.com

Like its chief competitor DG, DLTR is in the discount variety store sector. It has 15,000 stores in 48 states and five provinces in Canada yet has less than half the market cap of DG.

The sheer fact there’s such a differentiation in market cap for two retail stocks that do almost the same thing is a clear sign that DLTR is the more junior operation in terms of the markets. But it does offer a bit of diversification with its Canadian operations from which a weaker dollar will benefit. It’s also a bit cheaper.

The same challenges exist for DLTR as DG, so this sector of retail stocks doesn’t have much of a tailwind, unless something drastic happens to the economy.

The stock is off 6% year to date and might not move out of the red in coming quarters.

This stock gets a Portfolio Grader ‘D’ rating.

Retail Stocks to Avoid: Ralph Lauren (RL)

A Ralph Lauren outlet, October 21, 2013, Geneva, Switzerland.

Source: Martin Good / Shutterstock.com

Over the decades, the RL brand has become one of the symbols of American fashion. Its simple clean lines and straightforward designs have allowed to democratize fashion in the U.S. without being ostentatious. Farmers to bankers, teachers to C suite players sport RL labels.

Yet, while there are lines of clothes that are as high-end as fashion goes, RL has made a point of making its products available to the masses at more approachable prices. The volume of clothes it makes means the brand is available in department stores as well as discount fashion outlets.

RL is an odd combination of a high-end brand with a lot of distribution that almost works against the exclusivity of the brand as a whole. And its lower end distribution has certainly been hurt by the pandemic. Also, online retail stocks have made headway in eating into RL’s low and mid-market with new brands and better distribution channels.

It’s going to be tough to rebuild its once glorious past if trends continue as they are and RL doesn’t find a way to upgrade its broad market strategy. The stock is up 15% year to date, but earnings remain negative.

This stock gets a Portfolio Grader ‘D’ rating.

Ross Stores (ROST)

Retail Stocks to Buy for the Long Run: Ross Stores (ROST)

Source: Andriy Blokhin / Shutterstock.com

This discount fashion retailer has never adopted any type of e-commerce on purpose. It continues to believe that the treasure-hunting vibe of its retail stores is its unique selling proposition.

It wants bodies in the store to roam the aisles looking for hidden treasures. That also means, shoppers may go to buy pairs of pants and end up with a dog bed, some cookware and a pair of pants. This approach makes ROST unique among retail stocks.

While this was very effective over the last decade in bringing in fashion-conscious consumers that could buy name brands at discounts, e-commerce now poses a larger threat to its model.

ROST has over 1,500 stores around the U.S. and has been very popular with a new generation of shoppers after the market crash in 2008 and college students struggling with student loan debt. Its recent Q1 earnings were solid as well.

But the market is forward looking and having no online presence puts its long-term strategy at risk.

Retail Stocks to Avoid: Walgreens Boots Alliance (WBA)

Walgreens (WBA) store exterior and sign in Pompano Beach, Florida

Source: saaton / Shutterstock.com

With over 9,000 Walgreen’s stores in all 50 states and another 4,000 in 10 other countries, WBA is a major player in the drugstore business.

But its size wasn’t a great benefit when the pandemic hit, since there was nowhere to hide. And it was still sorting out the massive acquisition of half of Rite Aide (NYSE:RAD) stores a few years ago.

You many not think of WBA as part of the retail stocks sector, but much of its business is selling all the goods before you get to the pharmacy counter. That’s why in many stores, the pharmacy is placed in the back of the store, so you have to walk past all the stuff before you get to the counter. With foot traffic down, earnings have been challenging.

But WBA sold its wholesale European drug business earlier this month, which will lower its $16 billion debt load. And as the economy returns to normal, business in stores will pick up. The stock is up 31% year to date and has a 3.4% dividend. But it still has some challenges.

This stock gets a Portfolio Grader ‘D’ rating.

Walmart (WMT)

Image of Walmart (WMT) logo on Walmart store with clear blue sky in the background

Source: Jonathan Weiss / Shutterstock.com

Of all the retail stocks that could be on this list, WMT may be the most surprising. It’s a major retailer with a strong e-commerce presence. Its loyal customer base continues to show up in stores and online.

The challenge for WMT is, it was one of the retail stocks that was pegged a winner due to its powerful brand and strong e-commerce and same-day pick-up strategies. That means the stock was bid up during the pandemic. Its current price-to-earnings ratio is around 32x, which is pretty high. Retail stocks’ average P/E is around 20x.

That means it has a lot of expectations on it as we move forward. It may hit that mark. It may not. But WMT is already richly valued and there’s more downside risk than upside at this point. It’s certainly royalty among retail stocks, but there’s no point in buying it at a premium.

WMT stock is down 4% year to date.

This stock gets a Portfolio Grader ‘D’ rating.

Retail Stocks to Avoid: CVS Health (CVS)

the exterior of a CVS pharmacystore

Source: Jonathan Weiss / Shutterstock.com

Along with WBA, this is the other powerhouse drug store chain in the U.S., with nearly 10,000 locations.

These big drug store retail stocks moved quickly into the pharmacy benefits management (PBM) space after the Affordable Care Act went into effect as a way of boosting business and controlling costs of drugs.

But now that they have built out that platform at great expense, new competition is getting involved in the form of other retail stocks, like WMT. All the work CVS put into its new division is now being challenged by non-pharmacy-focused retailers both in stores and online.

This is the competitive challenge moving forward. CVS’ market cap is more than double WBA’s at this point, but that doesn’t make it immune from the changing marketplace.

The stock is up 20% year to date, but it will be a challenge to continue those types of gains.

On the date of publication, Louis Navellier has no positions in stocks in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Louis Navellier, who has been called “one of the most important money managers of our time,” has broken the silence in this shocking “tell all” video… exposing one of the most shocking events in our country’s history… and the one move every American needs to make today.


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