This is the holiday shopping season – a make-or-break time of year for many retailers, hoping seasonal shopping habits will mean a strong quarter to finish out 2023. Retail stocks will be under the microscope for the rest of the year.
And there’s plenty of reason for enthusiasm. First, look at consumer sentiment. The U.S. economy grew a surprising 4.9% in the third quarter, more than twice as much as in the second quarter.
Despite interest rate hikes, inflation and global turmoil, the economy is better than predicted, and we seem poised for a solid retail holiday season. Retail stocks are a good way to capitalize on those spending patterns and reap the rewards of higher sales and profits for retail companies.
Retail stocks are also a pretty decent way to diversify a portfolio. You can look at different industries, such as home furnishings or electronics. You can choose between e-commerce and brick-and-mortar companies. You can even look at retail stocks in different parts of the world.
No matter your interest, you’ll find all of these retail stocks with a Portfolio Grader rating. The Portfolio Grader ranks all stocks with a grade of “A” through “F” to help you decide the best names to buy.
Here are seven to consider this holiday season.
If you’re looking to buy and sell in Latin America, MercadoLibre (NASDAQ:MELI) may be the place for you. The company operates an e-commerce and digital marketplace responsible for more than 20% of all e-commerce sales in the region.
But MercadoLibre doesn’t stop there. It also has a payment platform for people who want to make digital transfers but don’t want to use a bank. MercadoLibre also operates a shipping business and a loan division.
The company’s “strong financial performance has been broad-based across geographies, with Brazil and Mexico making major contributions to the quarter’s profit growth and further diversifying our profit base,” management said in a letter to shareholders. “This gives us confidence as we continue to execute our growth plans across Latin America.”
Second-quarter revenue was $3.4 billion, up 57.2% from a year ago. Income of $558 million more than doubled from last year.
MELI will look to repeat that performance when it reports Q3 earnings in early November. For now, the stock is up 40% on the year, and it gets an “A” rating in the Portfolio Grader.
PDD Holdings (PDD)
PDD Holdings (NASDAQ:PDD) is the parent company of Pinduoduo, a Chinese e-commerce company. Pinduoduo stands out because it combines e-commerce and social media. It encourages users to pool their orders with friends, family and others to buy bulk items at a discounted price.
It also offers lower-priced products such as produce, household goods, cheap electronics and consumer items, making it a favorite among shoppers with a lower household income.
And finally, Pinduoduo capitalizes on the social networking aspect by engaging users with games, drawings and incentivized check-ins that encourage daily interaction.
Revenue in the second quarter was $7.2 billion up 66% from a year ago. The company also reported profits of $1.75 billion, an increase of 46%.
PDD stock is up 31% this year. It gets an “A” rating in the Portfolio Grader.
Abercrombie & Fitch (ANF)
Abercrombie & Fitch (NYSE:ANF) is a U.S.-based retailer popular primarily with younger consumers. The company’s brands include Abercrombie, Hollister and Gilly Hicks, and it’s best known for its denim products, graphic T-shirts and outerwear.
While some retailers struggled in the first half of the year with supply chain issues, inflation, sagging sales or lowered profit margins, Abercrombie is having a solid year. In the second quarter, the company recorded revenues of $935 million that was up 16% from a year ago.
And because the company could keep inventories manageable, the operating income of $90 million was much better than the $2 million loss the company recorded in the same quarter a year ago.
“While the macro environment remains dynamic, our first half results give us confidence to stay on offense for the second half,” CEO Fran Horowitz said. “Consistent with our ‘Always Forward’ plan, we are continuing to open stores and make critical long-term investments in digital and technology that will keep our brands in position to exceed our customers’ expectations.”
That sets up ANF stock well for the third quarter and the holiday season. The company’s stock is up 160% this year, and it has an “A” rating in the Portfolio Grader.
Sprouts Farmers Market (SFM)
As I mentioned, retail stocks come in all shapes and flavors. Enter Sprouts Farmers Market (NASDAQ:SFM), a U.S.-based grocery store chain that focuses on selling natural and organic products.
The company has 400 stores in 23 U.S. states, opening six new stores in the second quarter. And the growth story continues, as Sprouts plans to open at least 10 new stores annually.
“We believe we are on track with our long-term growth strategy, with positive traffic, an enhanced supply chain, and continued product innovation,” CEO Jack Sinclair said.
The company is reporting Q3 earnings on Oct. 31. Shareholders hope it continues to perform well – the Q2 report showed sales of $1.7 billion, up 6% from a year ago. Comparable store sales growth grew by 3.2%.
As more people are health conscious and looking for foods that fit that lifestyle, Sprouts is carving out a niche that should remain strong even if the economy begins to sour. But with good economic times, shoppers will line up for Sprouts’ premium offerings for their holiday tables.
SFM stock is up 35% this year. It gets an “A” rating in the Portfolio Grader.
Build-A-Bear Workshop (BBW)
What says holidays more than a new stuffed toy? This is a big time of year for Build-A-Bear Workshop (NYSE:BBW).
The specialty retailer is much more than a toy store. It’s an experience. Shoppers pick out an unstuffed toy and fill it with the stuffing themselves, then get to customize it with clothing and accessories.
The company has more than 500 retail locations, and it’s building out its e-commerce site with an online bear builder and an animated workshop. The company has its “Bear Cave” online site for adult shoppers, which includes the After Dark section where you can buy bears with more suggestive clothing.
Earnings for the second quarter were $109.2 million in revenue (up 8.5% from a year ago) and EPS of 57 cents per share (up 50% from a year ago). It reaffirmed its full-year revenue guidance, increasing 5% to 7% yearly.
BBW stock is up 2% this year, but I think it has a strong quarter in front of it. It gets an “A” rating in the Portfolio Grader.
ThredUp (NASDAQ:TDUP) operates an e-commerce platform for buying and selling pre-owned clothing for men, women and children.
Rather than disposing of unwanted clothes or donating them, users can have a thrift store experience by using the ThredUp platform and work with buyers and sellers across the country.
ThredUp says its platform has more than 35,000 brands, ensuring there’s something for virtually everyone. And the secondhand clothing market is significant, with expectations that it will grow from $211 billion this year to $351 billion by 2027.
ThredUp, which became publicly traded only three years ago, has a small market cap of less than $300 million. In that light, its quarterly revenue in Q2 of $82.7 million was substantial. Revenue was up 8% from a year ago. The company posted a net loss of $18.8 million, an improvement on its loss of $28.4 million a year ago.
As ThredUp scales and grows, the losses should turn into gains. TDUP stock is up 106% this year and gets an “A” rating in the Portfolio Grader.
Winmark (NASDAQ:WINA) is a Minnesota-based franchising business operating several second-hand retail franchise models. Its franchises include Plato’s Closet, Once Upon a Child, Play It Again Sports, Style Encore and Music Go Round.
Customers can bring used clothing, sports equipment or musical instruments and sell them for cash or store credit. The company has more than 1,300 franchises and over 2,800 available territories.
Third-quarter earnings showed revenue of $22.31 million, a gain of 5.4% from a year ago. Net income of $11.14 million was up 7.5% from last year. EPS was $3.05.
Winmark announced that besides its quarterly dividend of 80 cents per share, the company is paying a special dividend of $9.40 per share to shareholders. That payout will push the company’s annual dividend yield to a respectable 3.1%.
WINA stock shows solid gains throughout 2023, up 71%. It has an “A” rating in the Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.