Consumer retail sentiment is back in a big way. While still hovering around 70% of its pre-pandemic levels, the University of Michigan Consumer Sentiment Indicator jumped 20% in the past two months and is 45% higher than its 2022 low. Cooling inflation and a still-robust job market mean consumers are ready to spend. That consumer enthusiasm is particularly critical as we approach 2023’s holiday season. This has led to the rise of top retail stock picks to buy.
At the same time, though, retail warning signs are flashing. US consumer credit card debt is at its highest level and broke the $1 trillion mark in August. High consumer debt indicates shoppers can’t afford what they’ve been buying. Coupled with a savings rate at its lowest in almost 20 years, retail consumers are clearly overextending their finances. Likewise, retail outlets across the country suffer from record theft and other losses, as retail shrinkage costs hit $100 billion.
To that end, investors considering adding retail stocks to their portfolio should evaluate the options carefully. Today’s most promising retail stocks combine strong fundamentals, recurring and consistent revenue, and as recession-proof a model as possible in the event next year is worse than expected. Given today’s unique circumstances, these three retail stocks meet the mark and comprise the best the industry offers.
Home improvement retailer Lowe’s (NYSE:LOW) is on a run as the stock jumped 15% since January and more than doubled in the past five years. This year, Lowe’s is riding high on a wave of enterprise-level construction, including homebuilding, despite a softened individual consumer do-it-yourself (DIY) market.
Lowe’s touted its successful online sales growth and engagement with home professionals in its most recent filing. Both helped counterbalance a dip in spending on discretionary DIY projects. Lowe’s successful pivot in the face of slack consumer demand means they can readily adapt to changing conditions, and cemented themselves as a home professional go-to company even as consumer demand picks up. This helps make it one of those top retail stock picks.
CEO Marvin Ellison maintained confidence in the company’s performance and outlook, indicating that Lowe’s should remain dominant in the medium-to-long term on home improvement strength. Maintaining its full-year guidance despite challenges in specific market segments underscores Lowe’s strategic insight and adaptability. At the same time, Lowe’s is adept at building customer and brand loyalty as it positions itself as a teammate against natural disasters with resident populations.
The company’s customer focus, online platform success, and partnerships with home professionals all contribute to its ability to weather market fluctuations.
Costco (NASDAQ:COST), the warehouse-based bulk product behemoth, embodies an investor-friendly stock. The company hit a recent 23% return on capital, and its stock ran more than 150% in the past five years. Much of the initial push skyward came from mid-pandemic panic. As the dust settled, though, Costco proved resilient and became a consumer staple as economic conditions worsened.
Despite a tight economy coupled with runaway inflation in 2022, membership increased by 7% last year. New customer signups underscore the retail giant’s unparalleled value to budget-conscious consumers.
The company’s unwavering commitment to its customers further reinforces member loyalty. Though there have been calls from some quarters to increase membership fees, Costco’s CFO pointed to inflationary pressures and household budget tightening as justification for keeping fees stable. In the face of constant shareholder pressure, Costco’s commitment to its core value is a testament to its guiding principles. All in all, it’s one of those top retail stock picks.
Of course, I’d be remiss if I didn’t mention Amazon (NASDAQ:AMZN) as one of the top retail stocks to buy today. Lacking much of the charm some brick-and-mortar stores have, Amazon nevertheless is a lynchpin in today’s retail shopping experience. At the same time, its diversified product set, including cloud computing, shield Amazon from the worst effects of retail downturns.
Amazon’s stock surged by a hefty 60% year-to-date, reflecting the company’s continued eCommerce dominance. Amazon’s robust advertising arm within its retail side also continues blowing close competitors, including Meta (NASDAQ:META), out of the water. A favorite for buyers and sellers alike, Amazon’s strength and longevity in digital retail are unmatched and nearly untouchable.
This month, Amazon also racked up another win that opened a new market for the company. New market penetration is critical as it matures and runs out of new vistas to explore. Amazon and Shopify (NYSE:SHOP) penned a deal to link Shopify customers’ stores directly to Amazon-distributed product pages. The move opens new markets for Amazon. At the same time, the deal increases Shopify’s prospects. Existing Amazon sellers can now expand their digital reach through the Shopify platform. That, in turn, will drive further Amazon sales – creating a self-reinforcing feedback loop.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.