8 Retail Stocks To Put In Your Cart

The retail sector has been a minefield for investors in the past several years as traditional brick-and-mortar companies attempt to fend off online competition from Amazon.com, Inc. AMZN and others. In fact, the SPDR S&P Retail XRT is down 8% overall in the past five years.

But while some retail stocks may be in terminal decline, weakness in others may end up being a huge long-term buying opportunity. Others have actually outperformed in the past couple of years and may continue to do so in the future. Here are eight retail stocks to buy, according to Bank of America.

Amazon

If you’re looking for a place to start buying within the retail sector, it’s a no-brainer to start with the company that is primarily responsible for all the disruption. In addition to its growing e-commerce business, Amazon’s high-margin cloud services business and early-stage advertising businesses are growing at a rapid pace.

Analyst Justin Post recently said Amazon is well-positioned to exceed consensus estimates in 2020 once the company starts realizing investment returns on its heavy spending on one-day shipping and AWS.

Bank of America has a Buy rating and $2,480 price target for AMZN stock.

Lowe's Companies, Inc. LOW

One of the subsectors of the retail sector where Amazon has struggled to gain significant traction is home improvement. However, after years of underperforming its top rival Home Depot Inc HD, analyst Elizabeth Suzuki recently said Lowe’s is now one of the top transformation stock candidates within the entire retail group. A management refresh, a refocusing of its business and a clear, long-term financial strategy have created a runway for outperformance, Suzuki said. If Lowe’s starts to consistently outperform Home Depot’s numbers, the stock could close a valuation gap over time.

Bank of America has a Buy rating and $140 price target for LOW stock.

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TJX Companies Inc TJX

Discount retailers have held up relatively well against Amazon, and TJX is the world’s largest brick-and-mortar off-price retailer.

After recently meeting with company management, analyst Lorraine Hutchinson said store closures and bankruptcies by major competitors have created a window of opportunity for TJX to gain market share. TJX has made store renovations and HomeGoods top priorities in the near-term. Hutchinson said the company admitted to missteps with HomeGoods, but the mistakes have now been corrected. Excellent inventory management in the U.S. should drive same-store sales growth, while TJX has opportunity to expand square footage internationally in the long-term.

Bank of America has a Buy rating and $68 price target for TJX stock.

Target Corporation TGT

Target shares got hit hard in January when the company reported holiday sales well below expectations. However, analyst Robert Ohmes said near-term weakness is a buying opportunity for long-term investors.

Ohmes said there are plenty of things to like about Target in the next year or so, including 1,000 store remodels to be completed by the end of 2020, the expansion of Drive Up, private label launches in apparel and food/beverage and roll-out of Target’s Shipt same-day delivery service.

Bank of America has a Buy rating and $150 price target for TGT stock.

Ross Stores, Inc. ROST

You’d never know the retail sector is struggling by looking at Ross stock. Ross has more than doubled the overall return of the S&P 500 in the past five years, and Hutchinson recently said the company should continue to report solid same-store sales growth and gain market share from struggling competitors in 2020. Somehow, Ross has always found a way to grow, regardless of the macroeconomic conditions.

Hutchinson said Ross still has plenty of market to tap and could potentially double its footprint in the long-term.

Bank of America has a Buy rating and $125 price target for ROST stock.

Dollar General Corp. DG

Dollar General is the largest U.S. dollar store chain and is part of the discount store group that is relatively insulated from Amazon competition.

Dollar General has also tripled the S&P 500’s return over the past five years, and Ohmes recently said Dollar General should continue to grow profits due to strategic investments such as Fresh and Fast Track. In addition, store growth and remodels create opportunities for margin expansion in fiscal 2021. Ohmes said Dollar General’s expansion into fresh food could expand its addressable market in the long-term.

Bank of America has a Buy rating and $175 price target for DG.

O'Reilly Automotive Inc ORLY

Another retail subsector that has held up relatively well against Amazon has been auto pars retailers like O’Reilly. Suzuki recently said the post-earnings sell-off in O’Reilly created a buying opportunity for long-term investors. Suzuki said O’Reilly is the best-in-breed stock pick in a highly defensible and attractive business. Suzuki said recent weakness among auto parts stocks is tied to the mild winter, but that thesis is very short-sighted. The rare combination of same-store sales growth, impressive store growth and consistent margins makes O’Reilly a compelling value at current levels.

Bank of America has a Buy rating and $480 price target for ORLY stock.

AutoZone, Inc. AZO

Much of the O’Reilly bull thesis also applies to the largest U.S. auto parts retailer, AutoZone.

Suzuki recently said AutoZone may not put up the same level of growth numbers as many of its peers in the next couple of years due to its relatively high exposure to the do-it-yourself channel, but AutoZone remains a strong value compared to other stocks in the space. An aging global vehicle fleet should create tailwinds for auto parts retailers in coming years. AutoZone’s professional customer business is also impressive.

Bank of America has a Buy rating and $1,350 price target for AZO stock.