In the holiday shopping season, consumers benefit from three very positive trends. The first positive development is that gasoline prices have dropped sharply since the summer, putting significantly more money into consumers’ bank accounts. This cash flow surge has led to this list of consumer stocks to buy.
In a related trend, inflation has continued to slow, helped by lower gas prices, supply chain improvements, and reduced electricity costs. Finally, the labor market has remained relatively tight while wages rapidly increase.
Given this environment, many retailers should thrive during the holiday season and beyond. Here are three consumer stocks to benefit from retailers’ bright outlook.
TJX (TJX)
Discount retailer TJX (NYSE:TJX) reported strong Q3 results on Nov. 15 as its revenue climbed 9% versus the same period a year earlier to $13.3 billion, while the sales of its comparable stores jumped a robust 6%. Encouragingly, the latter increase was “entirely driven by customer traffic,” not price increases. As a result, the company’s comp sales will likely continue to jump sharply going forward. On the bottom line, its earnings per share increased 13% versus the same period a year earlier to $1.03.
TJX provided Q4 EPS guidance of 97 cents to $1, well below analysts’ average estimate of $1.13. However, given the company’s excellent Q3 results and the solid macro environment, I believe this outlook will be conservative. It also makes TJX one of those consumer stocks to buy.
Strengthening my belief in the latter thesis, CEO Ernie Herrman said, “The fourth quarter is off to a strong start, and…We are strongly positioned as a shopping destination for gifts this holiday selling season. We are convinced our values and fresh shipments to stores and online throughout the season will be a major draw again this year.”
Given the company’s impressive growth, its forward price-earnings ratio of 22.4 is attractive.
Walmart (WMT)
Walmart (NYSE:WMT) reported powerful, better-than-expected Q3 results on Nov. 16, indicating that it’s poised to perform very well during the holiday shopping season.
Specifically, the company’s revenue rose 5% versus Q3 of 2022 to $161 billion. That was $2.26 billion above analysts’ average estimate. In America, the company’s comparable sales climbed 4.9% year-over-year, while its earnings per share, excluding certain items, came in at $1.53, 1 cent above the mean estimate.
Also noteworthy is that WMT’s operating cash flow jumped $700 million versus Q3 of 2022.
Finally, in the U.S., Walmart’s e-commerce revenue rose 24% year-over-year. The latter metric and its overall results show that it’s more than holding its own in this e-commerce-oriented era.
Although some raised concerns about CFO John David Rainey saying that its sales growth had slowed in the last two weeks of October, Rainey added that the response to its discounts had been “pretty good.” As a result, I think the deceleration in October will be nothing more than a temporary blip.
Brinker (EAT)
Like Walmart and TJX, restaurant chain Brinker (NYSE:EAT) reported powerful Q3 results, showing that it is well-positioned to thrive in this year’s prime shopping season. (Although restaurant chains are not officially part of the holiday shopping season, they benefit from people going out to shop and eating at restaurants afterward).
The company’s top line jumped 5.7% versus the same period a year earlier to $1 billion, while its operating income rose to $24.2 million versus an operating loss of $19.8 million during Q2 of 2022.
Among the factors that led to the huge improvement in its OI were lower commodity costs, labor costs, and higher prices. It’s definitely one of those consumer stocks to keep on your watchlist.
On the date of publication, Larry Ramer 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.
