Right now, retail is undergoing a major shakeup. Consumer shopping habits have changed, perhaps permanently. As a result, quite a few retail stocks have been punished too much, seeing their stock prices plummet over the past few months. That might strike fear into some investors, but all I see right now is opportunity. While there will be more volatility ahead, the long-term growth trajectory for these stocks looks exceedingly bright.
You may have heard it a thousand times already, but the best time to buy is when everyone else is selling. That’s especially true when these investors are considering blue-chip giants. I see massive upside potential in several retail stocks right now. Hold them for the long-term, and let the power of compounding go to work. Five years from now, you’ll be very glad you loaded up at these discounted prices.
Dollar General (DG)
Shares of Dollar General (NYSE:DG) have tumbled 55% over the past year, a selloff I believe is way overdone. The discount retailer has hit some speed bumps lately, including supply chain disruptions, inventory gluts, and cautious lower-income shoppers. However, I don’t see the justification for Dollar General’s valuation getting slashed in half.
This is a well-run company with a great track record. While sales and earnings may slow in the near-term, Dollar General has overcome challenges before and emerged stronger. Once it right-sizes its inventory and works through temporary headwinds, I expect earnings per share growth to accelerate again. The company still sees a massive opportunity to expand its store base, especially in underserved rural markets.
With the stock trading at just 14-times forward earnings, I believe much of the bad news is already baked in. Dollar General’s brand and value proposition remains rock-solid among its core low-income shopper base. The long-term opportunity here is simply stellar.
Walgreens Boots Alliance (WBA)
Another retail stock that has plunged recently is Walgreens Boots Alliance (NASDAQ:WBA). Shares cratered 43% in 2023 and have traded at their lowest levels since 1988. While the pharmacy giant faces challenges, I don’t foresee its stock lingering at these depressed levels for long.
Undoubtedly, Walgreens faces reimbursement pressure and post-COVID headwinds to vaccinations and testing revenue. Its international retail chain, Boots, has also struggled amidst a weak U.K. economy, but seems to be recovering. However, Walgreens has levers to pull to improve profitability, including cost control and accelerating healthcare services growth. The company also pays an attractive 9% dividend yield at current levels. I don’t expect the dividends to stay at this level, but at 5.3-times forward earnings ratio, WBA stock is too compelling to ignore.
Plus, the company’s strategic shift toward healthcare offers big upside potential over the long term as pharmacy and healthcare delivery become more integrated. I believe it is better to take advantage of the negativity by buying Walgreens stock at this huge discount.
Burlington Stores (BURL)
Off-price apparel retailer Burlington Stores (NYSE:BURL) hasn’t been spared from Wall Street’s selloff. Its stock sits 62% down from its peak. While weaker discretionary spending among low-income shoppers has pressured sales and earnings, I contend the market has oversold this name.
No question, it may take some time for Burlington’s core customers to get fully back on their feet. However, the company has levers to pull to drive better performance. Burlington’s Q2 results showed sequential improvement, and its merchant team continues to source compelling off-price deals.
Trading at just 23-times earnings, BURL stock it is a little more expensive. However, the company’s revenue growth is nearly 10%. Thus, once macro conditions stabilize, the company’s solid value proposition and opportunistic buying approach should lead to a strong recovery.
On the date of publication, Omor Ibne Ehsan 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.
