5 Standout Stocks in a Challenging Retail World

Changing shopping trends, fickle consumers, and online competition remain challenges to the retailing sector. Several top investment experts and contributors to MoneyShow.com highlight some favorite retailers that continue to excel within their market niches, despite industry headwinds. Jim Pearce, Investing Daily's Personal Finance Three months ago, I suggested that Target Corp. was a wonderful company trading at an unfair price. At that time, the stock was at $67. The stock then dropped all the way to $60 before staging a remarkable rally that has raised its share price above $80. Driving that turnaround was strong Q4 and year-end results released by the company in March. Target reported a 5.3% increase in comparable sales led by a 31% jump in online sales. Target reported its highest annual earnings per share ever of $5.39 (adjusted) compared to $4.69 last year. The retailer also raised its adjusted EPS guidance for this year to $5.75 to $6.05, which would amount to a 10% improvement over last year. Most impressive is that these results have been achieved while the company has been spending heavily to transform hundreds of its stores to better compete with e-tailing giant Amazon.com, Inc. . By now, it should be apparent that Target has hit upon a formula for fending off Amazon that is working quite well and has legs that will carry it into 2019 and beyond. That being the case, how much longer before the stock market begins to treat Target with the respect it deserves, instead of reacting to every successful quarter like it is a big surprise? Target already has what Amazon wants (i.e., a national network of store locations combined with a strong online presence), and thus far none of Amazon's small forays into creating a physical presence has yielded definitive results. Of course, Amazon has other businesses such as AWS (Amazon Web Services) to justify its higher share price multiples. However, Target has proven that it can go toe-to-toe with Amazon in the retail space and deserves to be rewarded with higher share price multiples of its own. Recently valued at 12 times forward earnings (compared to a multiple of 16 for the S&P 500), and only 0.52 times sales (versus a multiple of 2.1 for the S&P index), the stock is a buy up to $80. Jim Powell, Global Changes & Opportunities Report NIKE, Inc. is a company that needs little introduction to most Americans -- or to millions of active people throughout the world. The company produces a wide range of footwear, clothing, equipment, and accessories to athletes and others who enjoy physical activities. NIKE has products for every major sport, including basketball, cricket, tennis, track & field, walking, cycling, golf, baseball, and several others. Popular minor sports are also in NIKE's lineup, including lacrosse and skateboarding. Nearly everything NIKE makes for adults it also makes for children. NIKE got its start with the specialized footwear it created for runners. Co-founder, Bill Bowerman, invented the famous waffle sole using his wife's waffle iron. The tough but lightweight shoes gave runners such a big advantage; within two years they were in demand everywhere. With its reputation for innovative sports gear solidly established, NIKE branched out into apparel that gives users an edge in most sports. The company is also very fashion conscious. People who use NIKE products look good--which give sales an added boost. I have a NIKE coat myself. It makes me feel less conspicuous when I plod along on my daily walks. NIKE markets its products directly to consumers, sells them through sporting goods stores, and licenses them to sports teams in their trademark colors. The company is now expanding its marketing program to make use of the unique advantages of the internet. From what I have seen, the new marketing effort will be very successful. While it doesn't offer income, I think NIKE is a company with exceptional growth potential. Lillian Currens, Schaeffer's Investment Research Retail concern Abercrombie & Fitch Co. has been relatively range-bound since its post-earnings bull gap in early March, trading between support in the $25 area and resistance around $27.50. However, the stock could be ready to rocket higher, if history is any indicator. Despite the stock's recent behavior on the charts, analysts are still approaching the stock with caution. Currently, eight analysts give it a hold rating, and three give it a sell or worse. There's not a single buy to be seen, which means the door is wide open for upgrades, should this positive price action continue. Short sellers continue to circle Abercrombie, too. Short interest rose 15.6% in the last two reporting periods, and now accounts for a solid quarter of the stock's available float. At the stock's average pace of trading, it would take over a week to cover these pessimistic positions, which could put even more wind at the equity's back. Considering this, now might be the time to bet on Abercrombie & Fitch stock's next leg up with options. Schaeffer's Volatility Index for the stock of 40% stands higher than only 3% of all other reading from the past year. This means that near-term options are pricing in low volatility expectations of late. Mike Cintolo, Cabot Top Ten Trader We've seen a bunch of companies in the past decade have two or three legs to their growth story. Just take Netflix, Inc. , which started with DVDs by mail, then moved into streaming and then original content. We think Lululemon Athletica Inc. is following a similar path, with the company's yoga-wear (which led the athleisure apparel movement a few years back) causing a huge growth wave in the early 2010s. Now, after a few years of snafus, the company is showing accelerating growth again as it succeeds in a number of new areas -- yoga is still a core business, but Lululemon has branched into apparel for outerwear (including cold weather) and office travel commuting for women. Men's wear (much of it athletic, but some not) is a big growth area and self-care products (well received in testing, including things like deodorant, balm and face moisturizer) are set to be launched in the near future. Throw in expansion overseas and investments in the firm's distribution and e-commerce capabilities and the results are outstanding: Q4 revenues lifted 26%, the fastest pace of growth in years, while earnings soared 39%, same-store sales rose 7%, e-commerce revenues shot ahead by 39%, and management had a solid outlook for the upcoming year. With Lululemon transitioning from a niche apparel and lifestyle brand to something much more, there's the potential for the firm to grow in a big way from here. The firm's upcoming Analyst Day (later this month) should provide more details. Lululemon broke out from a five-year base last March and had a big run, about doubling by the time the market got cranky in the fourth quarter. What followed was a sharp-but-reasonable correction (33%) and what turned out to be a new, six-month launching pad. And then the stock blasted out of that base on earnings two weeks ago (heaviest weekly volume since June 2017), and tacked on a bit of ground last week. We think you can buy in here. Chuck Carlson, DRIP Investor Retailing stocks have been a dangerous place to invest in recent years. Increased competition in virtually every retailing market, the Amazon effect, and the death of the mall have impacted a host of retailers. However, one retailer that continues to thrive in this competitive environment is Costco Wholesale Corp. . The firm operates approximately 770 warehouses, including 535 in the U.S. and Puerto Rico, 100 in Canada, 39 in Mexico, 28 in the United Kingdom, 26 in Japan, 15 in Korea, 13 in Taiwan, 10 in Australia, two in Spain, and one each in Iceland and France. A big part of Costco's appeal is its business model. The company's membership model, in essence, means that shoppers pay Costco for the privilege of shopping at their stores. Membership fees are a powerful force in the company's income statement. For example, through the first two quarters of the current fiscal year, membership fees were $1.5 billion. Interestingly, Costco's net income for the same period was $1.6 billion, or just slightly more than the membership fees. In a business with traditionally low profit margins, those membership fees truly set Costco apart from other retailers. The quarter ended February 17 was especially strong for the company. U.S. same-store sales were 7.4% and 5.4% across all geographies. Overall, net sales increased 7.3% in the quarter. A bright spot was the 20% growth in company's e-commerce sales. Per share profits in the quarter jumped 26% to $2.01, $0.32 better than analysts' estimates. The earnings beat caused analysts to lift their fiscal year estimates to $7.95 per share, up from $7.69 just 30 days ago. The company continues to report same-store sales numbers that would make virtually any brick-and-mortar retailer jealous. The strong results have helped these shares post higher highs in eight of the last nine years. Costco stock recently traded at 30 times the fiscal 2019 analysts' estimate, which is a hefty multiple for a retailer. Thus, there is some downside should Costco disappoint in upcoming quarters. However, the stock seems to always sell at a premium, so investors have to be willing to buy on pullbacks.

5 Standout Stocks in a Challenging Retail World

Retail may be a cutthroat business right now, but these stocks have risen above the pack.

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