Retail continues to grow due to rising consumer spending, stable demand for groceries and electronics, and price-conscious shoppers in times of inflation. In addition, with the emergence of supermarkets and hypermarkets, the sector is expecting further growth this holiday season as significant discounts and early promotions attract shoppers looking for end-of-summer bargains.
Therefore, investors might consider buying strong retail stocks like Costco Wholesale Corporation (COST), Target Corporation (TGT), and Walmart Inc. (WMT), which are well positioned for robust growth during the holiday season.
Holidays stimulate retail as grocery stores and big box retailers become major shopping destinations for food, gifts and online purchases. In response, companies adapt to changing demands by offering variety and convenience and providing personalized experiences that drive demand and fuel industry growth.
Consequently, the increase in sales during the holidays increases retail profitability and consumer engagement. According to Statista, retail sales during the holidays are expected to reach $960 billion in 2024. The retail industry is expected to grow from $32.68 trillion in 2024 to $47.24 trillion in 2029, a compound annual growth rate of 7.6%.
With these supportive trends in mind, let’s now examine the fundamentals of the three grocery/wholesale stock recommendations above, starting with the third choice.
Stock #3: Costco Wholesale Corporation (COST)
COST and its subsidiaries operate member warehouses worldwide. The company offers branded and private label products in various merchandise categories. It offers dry foods, delicatessen products, spirits, appliances, electronics, hardware, sporting goods and furniture.
In terms of return on equity for the last 12 months, COST is 31.64%, which is 195.7% higher than the industry average of 10.70%. Its return on total assets for the last 12 months is 17.72%, which is 157.5% higher than the industry average of 6.88%. Likewise, its asset turnover ratio for the last 12 months is 3.77x, which is 342% higher than the industry average of 0.85x.
For the third quarter ended May 12, 2024, COST’s total revenue increased 9.1% year-over-year to $58.52 billion. The company’s operating income increased 30.9% year-over-year to reach $2.20 billion. Net income increased 29.1% year-over-year to $1.68 billion. In addition, the company’s earnings per share was $3.78, up 29% year-over-year.
Street expects COST’s earnings per share and revenue for the quarter ending August 31, 2024 to rise 4.4% and 1.7% year-over-year, to $5.07 billion and $80.26 billion, respectively. It has beaten consensus earnings per share estimates in each of the last four quarters. Over the past year, the stock has gained 54.4%, closing the last trading session at $839.43.
COST’s POWR Ratings reflect its strong fundamentals. The company has an overall rating of B, which is a Buy in our proprietary rating system. POWR Ratings evaluate stocks based on 118 different factors, each with its own weighting.
It has a B grade for momentum, stability and sentiment. Within the A-rated Food/Wholesale industry, it is ranked 25th out of 37 stocks. Click here to see COST’s ratings for growth, value and quality.
Stock No. 2: Target Corporation (TGT)
TGT is a general merchandise retailer in the United States. The company offers apparel for women, men, boys, girls, toddlers, infants and newborns, as well as jewelry, accessories and shoes. It also offers beauty and personal care products, baby gear, cleaning supplies, paper products and pet supplies.
In terms of capital expenditure/sales for the last 12 months, TGT is 3.63%, 12.1% higher than the industry average of 3.24%. The return on equity for the last 12 months is 32.46%, 203.3% higher than the industry average of 10.7%. In addition, the asset turnover ratio for the last 12 months is 1.99x, 133.2% higher than the industry average of 0.85x.
For the first quarter ended May 4, 2024, TGT’s total revenues were $24.53 billion and operating income was $1.30 billion. The company’s net income and earnings per share were $942 million and $2.03, respectively. In addition, TGT’s cash and cash equivalents were $3.60 billion as of May 4, 2024, compared to $1.32 billion as of April 29, 2023.
For the quarter ending July 31, 2024, TGT’s earnings per share and revenue are expected to increase 21.9% and 1.8% year-over-year, to $2.19 billion and $25.22 billion, respectively. TGT beat Wall Street’s EPS estimates in three of the last four quarters. Over the past nine months, the stock has gained 22%, closing the last trading session at $133.97.
TGT’s strong prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Value, Momentum and Quality. It is ranked 22nd in the same industry. Click here to see the additional TGT ratings for Growth, Stability and Sentiment.
Stock No. 1: Walmart Inc. (WMT)
WMT operates retail, wholesale and other units worldwide. The company operates in three segments: Walmart US, Walmart International and Sam’s Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash-and-carry stores, discount stores, members-only warehouse clubs, e-commerce websites and mobile commerce applications.
On May 22, 2024, WMT announced a partnership with Pawp to provide members with 24/7 virtual access to veterinary experts. This new benefit provides unlimited pet telehealth services, increasing convenience and reducing costs for Walmart+ members.
In terms of return on equity for the last 12 months, WMT is 24.65%, 130.3% higher than the industry average of 10.70%. Return on total assets for the last 12 months is 11.49%, 66.9% higher than the industry average of 6.88%. Likewise, asset turnover ratio for the last 12 months is 2.63x, 209% higher than the industry average of 0.85x.
For the first fiscal quarter ended April 30, 2024, WMT’s total revenues increased 6% year-over-year to $161.51 billion. Likewise, adjusted operating income increased 13.7% year-over-year to $7.09 billion. The company’s consolidated net income attributable to WMT was $5.10 billion and $0.63 per common share, representing year-over-year increases of 205.1% and 200%, respectively.
Analysts expect WMT’s revenue for the quarter ending July 31, 2024, to increase 4.3% year-over-year to $167.22 billion. Earnings per share for the same quarter are expected to increase 5% year-over-year to $0.64. Consensus earnings per share estimates have been beaten in each of the last four quarters. WMT stock has gained 28.8% year-to-date over the past six months, closing the last trading session at $67.66.
It’s no surprise that WMT has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system.
It has a grade of A for stability and sentiment and a B for momentum. It ranks 13th in the Food/Wholesale industry. In addition to what we’ve provided above, we’ve also given WMT grades for growth, value and quality. You can find all of WMT’s ratings here.
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WMT shares were trading at $67.84 per share on Friday afternoon, up $0.18 (+0.27%). Year-to-date, WMT has gained 29.98%, while the benchmark S&P 500 index has risen 12.82% over the same period.
About the author: Abhishek Bhuyan
Abhishek started his professional career as a financial journalist due to his keen interest in identifying the fundamental factors that influence the future performance of financial instruments. More…
