Are These Retail Stocks On Your Watchlist?
American retail stocks have been on one wild ride. Since the coronavirus pandemic, many brick-and-mortar retailers may not recover from the downturn. But why are we focusing on a struggling industry? That’s mainly because no matter how bad things get in the near term, consumers will still need to buy essential products. In fact, some of the largest retail stocks are benefiting from the coronavirus pandemic. This came as many consumers rush to stock up on groceries and home appliances at unprecedented rates. As such, could trading retail stocks help investors make money? It depends.
I’m not rooting against JCPenney (JCP Stock Report), but the debt-ridden company recently declared bankruptcy. When we invest in a company, fundamentals are not something we should ignore. A recession is bad for retail, I get it. But we do not normally go from a humming economy to a complete halt overnight. That’s not something we’ve experienced, at least in modern history.
The current disruption in these stocks could present new opportunities for long term investors. From this pandemic, those retail stocks that came out of the woods could present buying opportunities. This shakeup clears away companies with less desirable debt levels and management, and allows investors to focus on the stronger ones. With that in mind, are these retail stocks on your watchlist?
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Retail Stocks To Buy (Or Avoid) #1 Lowe’s
First up on the list of retail stocks, Lowe’s (LOW Stock Report) stock surged after reporting that sales rose well above expectations. The stock’s momentum is not slowing down in May. The solid earnings reported on Wednesday helped move the market. As one of the major retail stocks on the list, the LOW stock fell to its lows of $65.02 per share earlier this year. It was not spared from the fastest and steepest market crash this century. But ever since then, the stock price has seen a V-shaped recovery. Since hitting lows in mid-March, LOW stock has rebounded more than 79%.
Digital Sales A Boost To LOW Stock
Online orders from its website surged 80%. This is a huge win for the company, which had trouble gaining grounds with e-commerce previously. As an essential business, Lowe’s is able to keep its stores open. While having their stores open is great, the digital channel is the real deal as many consumers preferred to stay at home.
“Our strong first-quarter performance, which continues into May, also reflects the benefits of our retail fundamentals strategy, the improvement in our execution, and the resiliency of our home improvement business model,” CEO Marvin Ellison said in a statement. “I am also pleased with our ability to pivot to serve increased online demand with Lowes.com sales increasing 80% in the quarter.
Retail Stocks To Buy (Or Avoid) #2 Walmart
Another retail stock on the list needs no introduction. Walmart (WMT Stock Report) posted a comparable sales growth of 10% with U.S. e-commerce sales jumping 74%. The overall revenue of $136.4 billion was highly positive as it beats consensus estimates of $130.3 billion.
The Best Coronavirus Stock?
Unlike some other retail giants, Walmart came prepared. The ability to grow profits stood out as it built out its curbside pickup and home delivery network for groceries. Walmart generates the majority of its sales from groceries, an advantage during the pandemic. Apart from that, its e-commerce operations are also stronger than major retailers in the US. Unlike many of its competitors, it gained operating leverage which allows it to absorb additional costs without hurting much of its bottom line.
Walmart’s plan to increase its Sam’s Club footprint in China is another major boost to the company. The plan to raise the number of moderately upscale retail outlets to 100 is a huge deal. The brand is expected to cater to China’s growing middle class. Its stores are often the destination for weekend shopping trips, like how people go to Ikea for leisure time with their family. With the economy reopening in China, this came at just the right time.
It appears Walmart has a virus-proof business model, its strength in groceries, and its ability to ramp up e-commerce. Is WMT stock poised for further growth in the coming quarter amid the pandemic?
Retail Stocks To Buy (Or Avoid) #3 Home Depot
Among retail stocks, Home Depot (HD Stock Report) has been one of the top names this week. The company reported its earnings on 19 May. Home Depot saw a comparable-store sales growth of 7.5%. But it wasn’t enough to offset workers’ benefits that took a huge bite out of its profit amid the coronavirus pandemic.
Social distancing rules which intentionally limit customer traffic in stores had a “significant impact to sales,” CEO Craig Menear said in a press release. In fact, customer traffic only fell 4%. Yet the home improvement giant saw higher average spending per visit. Customers spent $74.70 per trip this quarter, or 11% higher, year over year. Perhaps this is because more customers are doing home improvement works while they are stuck at home. Or maybe they want their homes to look better in a Zoom conference call. “The robust and flexible interconnected infrastructure that we have developed,” Menear explained, “allowed us to quickly adapt to changing customer preferences and achieve strong sales.”
Home Depot also saw reduced gross profitability amid mounting expenses. The company recorded expenses on wages, paid time off and extra sanitation measures that reduced earnings per share by $0.60, according to the estimates from management. The good news is that Home Depot demonstrated some competitive strengths over the past few months, including flexibility through a stressful operating environment. While the company appears to be resilient in the face of challenges, would investors be better off waiting out the economic storm?