- (1:00) – Finding Strong Retail Stocks For Long Term Investments
- (4:15) – Tracey’s Top Stock Picks: Creating A Watchlist
- (30:30) – Episode Roundup: HD, COST, TSCO, ULTA, WSM
- Podcast@Zacks.com
Welcome to Episode #322 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
A lot of value investors have invested in the retail stocks over the years. It’s just a natural area many investors go towards because they can “buy what they know.” And retail stocks were on sale at the start of the pandemic so many investors dove in.
But in 2022, they sold off on fears that the big spending boom was over and that a recession was on its way.
Does that mean some of the big cap retail stocks are deals now? And what if you’re a buy and hold, long-term investor? Should you be staying in these stocks?
5 Popular Retail Stocks for Buy and Hold Investors
1. The Home Depot, Inc. (HD)
Home Depot was the king of retailers during the pandemic, as everyone rushed to vacation at home. Consumers were putting in new kitchens, painting, gardening and buying grills for the back deck. But in 2023, everyone wants to travel and have experiences outside the home.
Analysts expect Home Depot’s earnings to fall 5% this year. Over the last year, shares of Home Depot have fallen 7%.
However, Home Depot has a forward P/E of 18.3, which isn’t cheap, but isn’t at nosebleed levels either. And investors get a dividend, currently yielding 2.9%.
Is this a buying opportunity in Home Depot?
2. Costco Wholesale Corp. (COST)
Costco has a cult-like following among retail investors. They love everything about the company and continue to own the stock, no matter the ups, and downs.
Shares of Costco have fallen 11.6% over the last year and it’s still expensive, with a forward P/E of 34. But analysts are bullish on the earnings outlook. They expect earnings growth of 9.4% this year and 8.4% next year.
It does pay a dividend, but it’s only yielding 0.7%.
Costco shares have outperformed the S&P 500 over the last 5 years, returning 169% versus 54% for the S&P 500.
But is Costco just too expensive for value investors to dive in?
3. Tractor Supply Company (TSCO)
Tractor Supply focuses on rural America. It’s tag line is “for life out here.” Earnings are expected to rise 7.8% in 2023 and another 10% in 2024.
Shares of Tractor Supply are up 0.3% in the last year and are near 52-week highs. But it’s been a stellar performer for a long time. Over the last 5 years, shares of Tractor Supply are up 291% compared to the S&P 500 up just 54%. And you get a dividend, paying 1.8%.
Tractor Supply isn’t cheap. It trades with a forward P/E of 22.5.
Is it too late to get into Tractor Supply?
4. Ulta Beauty (ULTA)
Ulta Beauty is one of the few big retailers which has actually seen its business pick up steam on the reopening as consumers were buying more makeup and skincare products once they could ditch their masks. Earnings are expected to rise 5% in fiscal 2024 and another 7.9% in fiscal 2025.
Shares of Ulta Beauty have jumped 34% in the last year and are near 5-year highs. However, it’s no longer a secret. Ulta Beauty trades with a forward P/E of 20.5, which is not cheap.
Can Ulta Beauty keep its momentum even if a recession hits?
5. Williams-Sonoma, Inc. (WSM)
Williams-Sonoma owns the hottest furniture brand out there in West Elm. But furniture sales are falling in 2023 as consumers spend money on travel and experiences.
Earnings are expected to fall 19.4% this year. Over the last year, shares of Williams-Sonoma have fallen 24% on fears about a recession slowing sales further.
Yet Williams-Sonoma is a value stock. It trades with a forward P/E of just 9.2. It’s also shareholder friendly and pays a dividend, currently yielding 2.5%.
Should investors wait for further weakness in Williams-Sonoma before diving in or are shares on sale now?
What Else do Buy and Hold Investors Need to Know About Retail Stocks?
Listen to this week’s podcast to find out.
[In full disclosure, Tracey has owned shares of ULTA since 2014 in her personal portfolio.]
Twist on Buffett’s Strategy Finds Hidden Gems with Triple-Digit Potential
No matter what your investing style is, you’re going to want to see this. It’s a simple twist on the stock-picking strategy Warren Buffett has used to put hundreds of billions of dollars on the books at Berkshire Hathaway.
Zacks Value Strategist Tracey developed this strategy to find overlooked stocks likely to deliver gains much bigger (and faster) than the average value investor expects. Recent winners have climbed as much as +348% in less than 2 years.
Tractor Supply Company (TSCO) : Free Stock Analysis Report
The Home Depot, Inc. (HD) : Free Stock Analysis Report
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report
Williams-Sonoma, Inc. (WSM) : Free Stock Analysis Report
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