9 Retail Stocks to Buy in Q2

These retail stocks could outperform in the near term.

Analysts and investors are anticipating a big reopening rebound in the U.S. economy in 2021, and the retail sector may have some of the biggest rebound winners. Unfortunately, it’s unclear if or when many retailers will return to pre-pandemic sales numbers. Some retailers have had to take on potentially crippling amounts of debt just to survive the past year. For now, Bank of America says the best opportunities in the retail sector are in home improvement, home furnishing and consumer electronics. Here are nine retail stocks to buy in the second quarter, according to Bank of America.

Floor & Decor (ticker: FND)

Floor & Decor is a home improvement retailer focused on tile, wood, laminate and stone flooring. Analyst Elizabeth Suzuki says in-home retail categories should continue to outperform away-from-home categories through at least the first half of 2021. Many Americans are temporarily or permanently working from home, improving demand for home renovation projects. Attractive mortgage rates are also driving housing market turnover and higher housing prices, another tailwind for Floor & Decor. Suzuki says rising housing prices have historically correlated well with home improvement spending. Bank of America has a “buy” rating and a $110 price target for FND stock.

Home Depot (HD)

Home Depot is the largest North American home improvement retailer. Suzuki says there are plenty of reasons for investors to buy Home Depot stock. The company has reported consistently strong same-store sales growth, including 20% growth in the most recent quarter. The company captures a large market share of U.S. at-home spending, which Suzuki says will remain elevated for the foreseeable future. Finally, Suzuki says the company’s One Home Depot initiative has helped it gain market share from home improvement competitors in recent years. Bank of America has a “buy” rating and a $360 price target for HD stock.

Lowe’s Companies (LOW)

Lowe’s is Home Depot’s primary competition in the North American home improvement space. Lowe’s is benefiting from the current macroeconomic home improvement tailwinds, and Lowe’s 28.6% same-store sales growth last quarter even outshined Home Depot. Suzuki says Lowe’s has made tremendous strides in winning over professional customers, and traffic to the company’s LowesForPros.com website has accelerated rapidly. Lowe’s will face some difficult year-over-year comparisons in 2021, but $9 billion in planned buybacks will help support the stock. Bank of America has a “buy” rating and a $215 price target for LOW stock.

Bed Bath & Beyond (BBBY)

Home furnishings retailer Bed Bath & Beyond reported a 17.3% drop in revenue and a $122 million net loss in fiscal 2021. However, analyst Curtis Nagle says Bed Bath & Beyond is an excellent turnaround play for retail investors in 2021. Nagle says the company faces extremely easy same-store sales comparisons throughout the next several quarters, and its new “owned brands” products are performing better than expected. Finally, Nagle says the company is getting more aggressive with its buybacks, which should support earnings per share. Bank of America has a “buy” rating and a $38 price target for BBBY stock.

RH (RH)

RH is a high-end home furnishings retailer that sells furniture, lighting and other products. Following the company’s fourth-quarter earnings beat, Nagel said RH is firing on all cylinders. The company raised its 2021 guidance, and Nagle says RH has both near-term and long-term growth drivers in place. RH is opening its first international locations next year, and it’s planning to debut its RH Aspen ecosystem in fall 2022. The company’s focus on luxury products generates much higher margins than other furnishings stocks. Bank of America has a “buy” rating and a $650 price target for RH stock.

Purple Innovation (PRPL)

Purple Innovation is a bedding retailer that sells products via both direct-to-consumer online channels and traditional retail partners. Purple’s revenue growth dropped from 60% in the third quarter of 2020 to just 40% in the fourth quarter. Nagle says investors should certainly monitor the revenue growth deceleration, but Purple’s long-term growth runway appears to be intact. Nagle says Purple is a differentiated brand that is still in the early stages of gaining market share from established competitors as it ramps up manufacturing capacity. Bank of America has a “buy” rating and a $32 price target for PRPL stock.

Tempur Sealy International (TPX)

Tempur Sealy is a global market leader in bedding retail. Nagle says the bedding category has been hot, and he is confident in Tempur Sealy’s long-term growth trajectory. Nagle says Tempur Sealy shares have endured earnings multiple contractions in recent years, likely due to investor misconceptions that the company’s current growth numbers are unsustainable. Mattress sales jumped during the health crisis last year, but Nagle says Tempur Sealy management remains confident the company can maintain double-digit revenue growth and 20% earnings growth in the future. Bank of America has a “buy” rating and a $50 price target for TPX stock.

Best Buy Co. (BBY)

Consumer electronics retailer Best Buy navigated the health crisis extremely well and reported 8.3% revenue growth and 16.6% net income growth in fiscal 2021. Nagle says the company’s guidance for between -2% and 1% same-store sales growth this year is likely conservative. He says Best Buy is a high-quality retail stock that generates steady growth and has both an attractive valuation and a strong balance sheet. Health-related tech is now a key growth category in the aftermath of the pandemic. Bank of America has a “buy” rating and a $132 price target for BBY stock.

Tractor Supply Co. (TSCO)

Tractor Supply is a U.S. retailer that specializes in farm and ranch supplies. Suzuki says the company is highly exposed to several bullish growth trends. Americans are moving out of cities and into more spacious suburban and rural neighborhoods. Pet ownership boomed in 2020. Social distancing has produced an uptick in solitary leisure activities, including gardening. Finally, industry consolidation favors large retail chains like Tractor Supply over small businesses. Tractor Supply recently acquired Orscheln Farm in a $297 million deal. Bank of America has a “buy” rating and a $190 price target for TSCO stock.

Nine retail stocks to buy in the second quarter:

— Floor & Decor (FND)

— Home Depot (HD)

— Lowe’s Companies (LOW)

— Bed Bath & Beyond (BBBY)

— RH (RH)

— Purple Innovation (PRPL)

— Tempur Sealy International (TPX)

— Best Buy Co. (BBY)

— Tractor Supply Co. (TSCO)

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