There’s no denying that earnings announcements in October typically mean increased choppiness in equities. But on the other hand, the stock market tends to stage a new leg up in fall and winter months. Soaring consumer spending during the holiday season, including Halloween, Black Friday and Christmas, bring cheer to many stocks to buy.
Despite growing concerns over global supply chain issues, retailers are focused on expanding and improving their offerings. With only days until Halloween, investors may be in for a treat with retailer stocks, as they stand to benefit the most during this holiday season. Recent months have shown that consumers have the urge as well as the means to spend. Therefore, today I’ll discuss seven retail stocks to buy that can generate luscious returns for long-term investors.
According to a report by Mastercard (NYSE:MA), “U.S. retail sales are anticipated to grow 7.4% excluding automotive and gas.” In addition, e-commerce sales are projected to surge 7.5% year-over-year (YOY). On the other hand, in-store sales are expected to pick up this year as well, with a 6.6% YOY increase.
Retail innovations such as in-store pick-ups, online, and contactless shopping should continue to be popular among consumers who prefer a smooth shopping experience.
With that information, here are seven stocks to buy that are well-positioned to benefit from increased consumer spending during the holiday season:
- Farfetch (NYSE:FTCH)
- Gap (NYSE:GPS)
- Invesco S&P 500 Low Volatility ETF (NYSEARCA:SPLV)
- Mondelez International (NASDAQ:MDLZ)
- Stitch Fix (NASDAQ:SFIX)
- Target (NYSE:TGT)
- TJX Companies (NYSE:TJX)
Stocks to Buy: Farfetch (FTCH)
52-Week Range: $27.08 – $73.87
London, United Kingdom-based Farfetch operates an online platform connecting sellers and buyers of personal luxury goods. The company collaborates with over 1,000 brands and companies offering their inventory on the platform.
Farfetch released second-quarter results in mid-August. Revenue increased 43% year over year to $523 million. The group generated a net income of $88 million compared to a net loss of $436 million in the prior-year period. Cash and equivalents ended the quarter at $1.05 billion.
On the results, CEO José Neves remarked, “Our stronger Farfetch brand is drawing marketing partnerships and even greater supply from brands to drive a 90% increase in full-price sales year-over-year from the highly valuable luxury audience we have attracted.”
Farfetch has recently secured $1.1 billion in investment from Alibaba (NYSE:BABA) and the Swiss jewelry group Richemont. Expansion into the booming luxury goods market in China is the next step for the group.
The company forecasts double-digit revenue growth in 2021. FTCH stock hovers in $40 territory. It is down 35% year-to-date (YTD). Shares are trading at under 8x trailing sales. A further drop below $40 would improve the margin of safety for long-term buyers.
52-Week Range: $18.30 – $37.63
San Francisco, California-based Gap offers a range of apparel and accessories under the Gap, Old Navy, Banana Republic, Athleta and Intermix brands.
Gap released Q2 results in late August. Net revenue came in at $4.2 billion, up 29% YOY. Net income came in at $258 million, compared to a net loss of $62 million in the prior-year quarter. Adjusted earnings per share stood at 70 cents. The company ended the second quarter with $2.7 billion in cash and short-term investments.
CEO Sonia Synga remarked, “Our talented teams delivered our highest second quarter net sales in over a decade. … Stepped-up marketing investments, improved brand management, and technology enhancements are paying off as our brand power cuts through.”
Gap’s second-quarter revenue outpaced 2019 levels by 5%, thanks to the rapid growth of its Old Navy and Athleta brands. On the other hand, sales of Gap and Banana Republic brands saw declines. For the full year, management expects to report adjusted EPS between $2.10 and $2.25, based on 30% YOY revenue growth.
Put another way, revenue growth should accelerate during the second half of the year.
GPS stock currently trades at around $23 per share, up 13% this year. GPS stock has pulled back about 40% from its multi-year high seen in May. Its depressed valuation creates an attractive entry point for long-term investors. GPS shares are trading at almost 10x forward earnings and 0.5x sales.
Stocks to Buy: Invesco S&P 500 Low Volatility ETF (SPLV)
52-Week Range: $51.51 – $64.70
Expense Ratio: 0.25% per year
The Invesco S&P 500 Low Volatility ETF gives access to to 100 names of the S&P 500 that have seen the least volatility in the past year. In other words, stocks with minimum volatility earn the highest weights in the ETF. Therefore, SPLV is likely to look somewhat different during Halloween in October 2022 than it does currently. The fund is rebalanced four times a year, in February, May, August, and November.
The fund, which tracks the S&P 500 Low Volatility Index, began trading in May 2011. In terms of the sub-sectoral breakdown, the consumer staples sector makes up the highest slice with 22%, followed by utility (18%), healthcare (15%) and industrials (12%), among others. The leading 10 holdings account for close to 14% of net assets of $7.9 billion.
Among the top names in the roster are Verizon Communications (NYSE:VZ), Procter & Gamble (NYSE:PG), PepsiCo (NASDAQ:PEP), Hershey (NYSE:HSY), McDonald’s (NYSE:MCD) and Colgate-Palmolive (NYSE:CL).
The fund returned almost 13% YTD and 16% over the past 12 months. Forward price-to-earnings (P/E) and price-to-book (P/B) ratios stand at 19.6x and 4.18x. Interested investors could consider buying around $60.
Mondelez International (MDLZ)
52-Week Range: $52.51 – $65.60
Chicago, Illinois-headquartered Mondelez is a leading player in the global snack space. It has a significant market presence in the biscuit, chocolate, gum and candy aisles of grocery stores. The company is well-known for its Cadbury, Milka and Sour Patch Kids candy products, and Oreo cookies.
Mondelez issued Q2 results in late July. Net revenue increased 12 % YOY to $6.6 billion. The company generated net earnings of $1.08 billion, compared to $544 million in the prior-year quarter. Adjusted EPS came in at 66 cents, up 1.6% on a constant-currency basis. YTD free cash flow stood at $1.4 billion. Cash and equivalents ended the second quarter at $1.97 billion.
Following the announcement, CEO Dirk Van de Put commented, “We delivered another strong quarter of performance across all key metrics, including top-line, profitability and cash generation. We continue to see strength across the vast majority of our geographies, categories and brands …”
The pandemic has changed consumer behavior in many ways, but it has not necessarily led to a change in the appetite for snacks. Recent metrics suggest, “The global snacks market size valued at USD 439.9 billion in 2018 and is expected to grow at a compound annual growth rate (CAGR) of 6.2% from 2019 to 2025.” In 2020, Mondelez delivered record market share gains in key markets, including cookies in the U.S. and China.
Management implemented various strategic initiatives in the past year to come out stronger from the pandemic. It has simplified operations, invested in improving its digital content, and modified supply chain to improve logistics operations.
MDLZ stock has a reasonable valuation, currently hovering at $60 per share. It is up 3% this year. MDLZ shares trade at close to 19x forward earnings and 3x trailing sales.
Stocks to Buy: Stitch Fix (SFIX)
52-Week Range: $31.50 – $113.76
San Francisco, California-based Stitch Fix offers personal styling services for individuals. It uses machine learning and artificial intelligence (AI) software to help stylists create a personalized shipment of apparel, shoes as well as accessories.
Stitch Fix announced Q4 fiscal 2021 results in late September. Revenue increased 29% YOY to $571 million. Net income was $21.5 million, or 19 cents per diluted share, compared to a net loss of $45 million, or 44 cents loss per diluted share, in the previous year. Cash and equivalents ended the quarter at $130 million.
CEO Elizabeth Spaulding remarked, “In Q4 we delivered $571 million in net revenue, reflecting 29% year-over-year growth, helping us cross $2 billion in annual net revenue for the first time. These results reflect strong performance across our business, in Women’s, Kids and the UK.”
The company has a customer-friendly return policy, which enables it to attract a large number of shoppers. Through its Stitch Fix Freestyle, customers can also purchase clothing directly instead of only receiving personalized items.
Management expects operations to grow rapidly at a double-digit percentage pace. SFIX stock currently trades at around $34 per share, but is down 42% YTD. Shares are trading at 1.7x sales. Interested readers would find value around these levels.
52-Week Range: $150.80 – $267.06
Minneapolis, Minnesota-based Target is a leading general merchandise retailer with close to 2,000 stores. Thanks to years of investment in omnichannel infrastructure, Target is on track to become a prominent online retailer.
Management issued Q2 results in mid-August. Revenue went up by 9.5% YOY to $25.2 billion. Net income came in at $1.8 billion, or $3.65 per diluted share, up from a net income of $1.7 billion, or $3.35 per diluted share, in the prior-year quarter. Cash and equivalents ended the quarter at $7.4 billion.
On the results, CEO Brian Cornell cited, “In the second quarter, our business generated continued growth on top of record increases a year ago, reinforcing Target’s leadership position in retail.”
Management is stepping up efforts to ensure stores are well-stocked, and it has enough employees to address the customer demand. The company even chartered its container ship. Now, Target has more flexibility around potential supply chain issues.
The company’s annual revenue and profit remain at record levels. For the second half of 2021, the Street anticipates high single-digit growth in comparable sales. TGT stock currently hovers at $250 territory, up 43% YTD. Shares are trading at 19x forward earnings and 1.2x trailing sales.
Stocks to Buy: TJX Companies (TJX)
52-Week Range: $50.06 – $76.16
Framingham, Massachusetts-based TJX Companies is well-known as an off-price retailer of apparel, home fashions and other merchandise. It is the parent company of T.J. Maxx, HomeGoods and Marshalls.
TJX released Q2 FY22 results in mid-August. Revenue of $12.1 billion increased 81% YOY and 23% compared to Q2 FY20. Net income for the second quarter was $786 million, or 64 cents per diluted share, up from 62 cents in Q2 FY20. Cash and equivalents ended the quarter at $7.1 billion.
On these metrics, CEO Ernie Herrman stated, “I am extremely pleased with our overall open-only comp store sales increase of 20% over Fiscal 2020 and very strong bottom line results, both of which were well above our plans for the second quarter.”
Following the opening up of our economy, TJX’s sales have been rebounding. The group continues to profit from manufacturers’ plans to monetize their excess inventories. Management plans to achieve $60 billion in annual sales eventually.
TJX stock hovers at around $64 per share, down 6% YTD. Shares are trading at roughly 19x forward earnings and 1.8x sales. Interested readers could consider investing around these levels.
On the date of publication, Tezcan Gecgil did not have (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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.