Retail sales are moving at a sluggish pace but several trends suggest that strong buy retail stocks will yield high returns in the long-haul.
In a year marked by inflationary concerns, high unemployment and fed rate cuts, the retail industry is experiencing a major slowdown. Retail sales in May grew slightly at 0.1% versus last month and 2.3% over last year. This came in below the anticipated 0.3% increase this month.
However, the long term prospects for the industry remain positive. Spurred by rapid economic growth and tech innovations the Bureau of Economic Analysis expects retail sales in 2024 to rise between 2.5% and 3.5%. Furthermore, the integration of AI, augmented and virtual reality (AR/VR) solutions in digital platforms is set to enhance the shopping experience.
Despite the current challenges, analysts remain bullish on several companies in the space, rating them as strong buys. These stocks show promise of significant long-term upside, making it the perfect time to get in while prices remain favorable.
Ulta Beauty (ULTA)
Ulta Beauty (NASDAQ:ULTA) has been on a winning streak for the last few years. Fueled by the expansion of its store footprint, loyalty programs and Gen Z splurging more on beauty products, the company has managed to stay on top of analysts’ buy lists, despite a recent slowdown in sales.
In its recent earnings report, the company reported a 1.6% increase in comparable sales versus the prior quarter. While this was an improvement, it was still a considerable decline from the same period last year. The dip is a result of declining demand in its prestige beauty category where Ulta struggles to gain market share. Nevertheless, shares of the company gained 11% following its CEO’s optimistic strategy to boost sales in the second half of the year.
As a historically strong performer in the retail sector, Ulta’s low price is an opportune time to invest in the stock. The company has a highly differentiated business model, catering to a wide customer base with brands across different price segments.
In addition to a strong product portfolio, Ulta also generates revenue from its in-store services and rewards customers through its loyalty program. This will serve as catalysts for the company growth when the markets recover.
Analysts at Loop Capital and TD Cowen seem to agree, giving the stock a buy rating and price upside in the $500 to $520 range. ULTA is currently among the top strong buy retail stocks based on 27 analyst ratings.
Alibaba (BABA)
It’s been a slow couple of years for Alibaba (NYSE:BABA) but several trends point to a strong recovery on the horizon. The e-commerce giant’s financial performance was clouded by fierce industry competition and macroeconomic concerns that ate into its market share. BABA stock has been trending lower and is down considerably from its pandemic-induced highs in 2020.
While the stock charts don’t paint a pretty picture, analysts predict a major upside potential for the company. One reason for this optimistic outlook can be attributed to its recent earnings report. Alibaba reported a 4% increase in its e-commerce business, a 2% rise over the previous quarter. Looking ahead the company anticipates higher growth rates that will be fueled by its cloud and AI businesses. These initiatives will potentially drive double digit revenue growth in the coming years.
While the immediate future still remains a challenge, analysts continue to remain bullish on the stock’s performance. Loop Capital gave BABA stock a buy rating and a 45% price upside. Citigroup maintains a similar rating, predicting a 53% price increase. Analysts’ sentiments towards Alibaba makes this the perfect time to get in on this strong buy retail stocks.
Lovesac (LOVE)
While furniture stocks don’t warrant the most enthusiastic responses from investors, Lovesac (NASDAQ:LOVE) is a name that stands out from the crowd. The small-cap growth stock is perhaps well known for its “sanctionals” which are small modular couches that can be rearranged in endless ways to fit your space. This unique piece of furniture has served a huge catalyst for its growth, accounting for 90% of total net sales.
In addition to its eco-friendly furniture, Lovesac’s growth is also driven by its omni channel sales platforms. The company has a digital presence, 147 pop-ups in Costco (NASDAQ:COST), locations in 41 Best-Buy (NYSE:BBY) and partnerships with several retailers. This helps the company enhance brand visibility while keeping operating costs minimal.
In its recent earnings report, Lovesac shares gained on a narrower than expected net loss amidst a challenging market environment. Revenue came in at $132 million, surpassing expectations of $128 million. Full year guidance set between $700 million to $770 million.
Keeping with this optimistic outlook, analysts remain bullish on LOVE stock as the market continues to recover in the latter part of the year. Roth/MKM maintains its buy rating on the stock with a price target of $30. Lovesac is also rated among the top strong buy retail stocks based on six analyst ratings.
On the date of publication, Divya Premkumar 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.
