Analysts are anticipating a retail rebound.
Given a coronavirus vaccine appears to be just around the corner, the U.S. retail sector could provide some excellent opportunities for investors in 2021, should consumer behavior get back to normal. Gordon Haskett analyst Chuck Grom recently outlined the two retail investment strategies he is recommending for 2021. First, Grom sees plenty of beaten-down retail sector stocks poised for a comeback in 2021. Second, he says some 2020 retail winners are positioned to maintain market-share gains and momentum heading into the new year. Here are Gordon Haskett’s top 10 retail sector stock picks to buy today.
Target Corp. (ticker: TGT)
Walmart (WMT) shares are up about 25% in 2020, outpacing the S&P 500’s 14.3% gain. However, discount retail competitor Target has outshined even Walmart, gaining about 35% year to date. Grom says Target’s outperformance will continue in 2021 and prefers investors buy Target shares over Walmart. Target has reported impressive growth numbers this year, but Grom is projecting the company will still generate modest earnings and same-store sales growth in 2021. In the meantime, he says Target will benefit from its store-centric fulfillment model this holiday season. Gordon Haskett has a “buy” rating and $185 price target for TGT stock.
Ross Stores (ROST)
Ross Stores has had a difficult run in 2020, with the stock trading down slightly on the year. In the third quarter, Ross reported a 2.6% drop in revenue and a 64.7% decline in net income compared with a year ago. However, Grom is projecting 31% same-store sales growth in 2021 and a return to revenue levels roughly in line with 2019. Grom says investors should brace for difficult holiday-season numbers in January, but any weakness in the stock is a buying opportunity. Gordon Haskett has a “buy” rating and $126 price target for ROST stock.
Five Below (FIVE)
Five Below is a specialized off-price retailer that offers products priced at $5 or less. In the third quarter, Five Below’s revenue jumped 26.3% and its earnings per share doubled from a year ago. Grom is projecting that momentum will continue in 2021 and is calling for 15% same-store sales growth and $3.80 in EPS. Grom says a larger contribution from digital sales, expansion into different product categories and a greater mix of Five Beyond revenue could help Five Below exceed expectations this holiday season. Gordon Haskett has a “buy” rating and $165 price target for FIVE stock.
Burlington Stores (BURL)
Burlington Stores has been a laggard in the market in 2020 and reported a 6.2% drop in revenue and a 91.7% decline in net income in the third quarter. In 2021, Grom says Burlington is one of his top recommendations for investors to play the off-price theme in the retail space. He is looking past a difficult holiday shopping season and projecting 28% same-store sales growth in fiscal 2021. In addition, he’s forecasting $7.17 in 2021 EPS and $10.10 in 2022 EPS for Burlington. Gordon Haskett has a “buy” rating and $262 price target for BURL stock.
Dollar General Corp. (DG)
Despite the challenging environment, Dollar General reported 62.7% EPS growth, 17.3% revenue growth and 12.2% same-store sales growth in the third quarter, and the stock is up about 37% year to date. Grom says the company’s evolution via initiatives such as DG Fresh, the nonconsumable initiative and Popshelf are indicative of the company’s ability to improve productivity and continue to grow from its high 2020 base. Grom is projecting same-store sales and earnings growth will remain positive in 2021 despite extremely difficult comparisons. Gordon Haskett has a “buy” rating and $240 price target for DG stock.
TJX Cos. (TJX)
TJX certainly falls into the retail recovery category given revenue was down 3.3% and same-store sales were down 5% in the third quarter. Grom is projecting 31% same-store sales growth in 2021 given easy year-over-year comparisons. Pent-up consumer demand may also contribute to 2021 sales growth. Grom says TJX has a clean inventory, and its long-term outlook is better than ever. He’s projecting $2.55 in 2021 EPS and says TJX’s sales should recover to 2019 levels much faster than the department stores do. Gordon Haskett has a “buy” rating and $74 price target for TJX stock.
BJ’s Wholesale Club Holdings (BJ)
BJ’s Wholesale Club has been one of the biggest winners in the retail sector in 2020, gaining about 70% year to date. BJ’s reported 15.6% revenue growth in the third quarter and 122.9% net income growth compared with a year ago. In the near term, Grom says BJ’s will continue to benefit from the same eat-at-home trends that have boosted sales throughout the year. In the longer term, Grom says investors still don’t fully appreciate BJ’s membership revenue, strong customer retention rate and accelerated unit growth opportunities. Gordon Haskett has a “buy” rating and $50 price target for BJ stock.
Home Depot (HD)
Home Depot has been a top performer in 2020 and has gotten a big boost from several environmental tailwinds. In a socially distanced world, event cancellations, travel restrictions and store closures have shifted more consumer spending to home improvement projects. Americans are working from home, which has allowed workers to move out of cities and into suburbs. Finally, an emergency rate cut by the Federal Reserve has triggered a boom in home sales. Grom says Home Depot’s Pro business should also be a bullish catalyst through 2022. Gordon Haskett has a “buy” rating and $315 price target for HD stock.
Floor & Decor Holdings (FND)
Floor & Decor has ridden the same home improvement wave in 2020 that Home Depot has. In the third quarter, the company reported 18.4% same-store sales growth compared with a 20.8% decline in the second quarter. Management said same-store sales growth improved in each month of the quarter, a trend that bodes well for the company’s fourth-quarter numbers. Grom is projecting 20% EPS growth in 2021 and 29% EPS growth in 2022, roughly double the average growth rate of its peer group. Gordon Haskett has a “buy” rating and $90 price target for FND stock.
Costco Wholesale Corp. (COST)
In early December, Costco reported 13.4% same-store sales growth for the month of November and said its fiscal first-quarter same-store sales growth increased by 15.4%. That number represents the highest quarterly growth rate for the company in more than 20 years. Costco also reported 71.3% online sales growth in November and 86.4% in the fiscal first quarter. As good as 2020 has been for Costco, Grom is projecting 9% EPS growth in 2021 and 10% growth in 2022. Gordon Haskett has a “buy” rating and $400 price target for COST stock.
Retail stocks worth buying:
— Target Corp. (TGT)
— Ross Stores (ROST)
— Five Below (FIVE)
— Burlington Stores (BURL)
— Dollar General Corp. (DG)
— TJX Cos. (TJX)
— BJ’s Wholesale Club Holdings (BJ)
— Home Depot (HD)
— Floor & Decor Holdings (FND)
— Costco Wholesale Corp. (COST)
More from U.S. News