Best Retail Stocks Right Now

Not a day goes by without some type of Retail Armageddon story from the financial media; to a certain extent, it’s justified. The coronavirus sped up the demise of several big department stores like Neiman Marcus, J. Crew, and Modell’s Sporting Goods, but calling for the demise of retail might be a bit premature. Neiman Marcus and J. Crew emerged from bankruptcy, and it’s possible that other retail establishments can do the same. Now is the time to learn all you can about retail stocks.

Changing the way we do business doesn’t mean the end of the business as we know it. Retailers with strong online footprints, recognized brands and the ability to adapt to new consumer trends will still thrive, even if the pandemic brings on an era of increased savings. This is America, we’re always going to feel the urge to get new stuff every now and then, right? Today we’ll look at 5 retail stocks that could emerge as big winners.

Quick Look at the Best Retail Stocks:

• Foot Locker, Inc.
• TJX
• Home Depot
• Big Lots, Inc.
• Target Corporation

Overview: Retail Stocks

Retail is one of the oldest businesses in America. Macy’s, a brand retailer recognized across the nation, has roots going back as far as 1852. Retailers are different from other types of consumer goods companies because they supply products to the end users themselves. They don’t manufacture or distribute products; retailers are a direct-to-consumer business. 

Even so, consumer spending and the consumer price index impact these stocks. Some investors research the consumer expenditure survey to learn where they should put their money while others review data from the Department of Commerce and Bureau of Economic Analysis. In short, you need to find as much interactive data as possible before you invest in these assets.

Some examples of retail companies include department stores, discount stores, food and grocery, home improvement stores, auto parts suppliers, clothing stores and drug stores. There’s often a lot of sector overlap between consumer discretionary and consumer staples among retail firms.

Retail stocks are also some of the oldest shares occupying our favorite indices. JCPenney has exited bankruptcy, but they’ve been trading on the New York Stock Exchange since 1927.  Amazon dominates this space today as both a consumer discretionary and consumer staples provider, but who needs to be told to buy Amazon stock? 

Despite its dominance, Amazon doesn’t have a stranglehold on consumer spending and plenty of other companies in the retail space have room to grow. Some companies are newcomers who have adapted to a rapidly changing environment, but others are institutions thanks to successful business models dating back decades.

Best Online Brokers for Retail Stock

Retail stocks have been choppy during the COVID-19 pandemic with juggernauts like Amazon reaching new highs while department stores Macy’s and JCPenney struggle to survive.

Fortunately, finding retail shares doesn’t require much of a search. Stocks of popular retailers are readily available as most major brokers, so choosing one depends more on your investment style than the type of stock you’re looking for. Most brokers offer commission-free stock trading now, so it’s never been cheaper to start trading or investing in the retail sector.

Features to Look for in Retail Stock

When looking for retail stocks with strong future prospects, consider the following features. Companies boasting these characteristics will have higher chances of success compared to their peers.

• Strong online footprint: Online shopping is here to stay. It was probably coming even without the coronavirus, but a global pandemic has certainly increased the amount of consumers ordering their goods online. Certain types of shopping will always have strong demand for in-person sales, like clothing and furniture. But a strong online presence is a must to navigate the current environment.

• Popular brand names: Selling is all about trust and consumers trust brand names they know and recognize. Retailers with a wide variety of trusted brands will do well in an economy where consumers hold their dollars a little tighter.

• Steady or expanding gross margins: In an uncertain economic environment, keeping costs down is crucial. Gross margin refers to the profits kept after the cost of goods sold is subtracted from revenue. Companies with declining gross margins are either losing sales or seeing increases in costs. Neither is a good scenario for business.

The Demise of Retail Might be Exaggerated

The media reports on the retail apocalypse might be a bit overdone. Sure, the malls and department stores are in trouble as consumer trends change and online shopping bleeds formerly reliable foot traffic. But retail isn’t going anywhere. Companies in the space might look and operate differently, but getting products directly into the hands of consumers will always be big business. 

The National Retail Federation is bullish, and consumer spending data indicates that many of these consumer cyclical businesses are performing well. You might also want to look at data from the Bureau of Labor Statistics to see how jobs numbers are performing.

As long as the consumer has money to spend and needs to fill, certain retailers will thrive. The ones who fail to adapt will cease to exist, but that’s the way of life in any industry. The companies on this list not only have the ability to adapt to new trends but they have the trust factor to keep those customers coming back.

Frequently Asked Questions