These retail stocks could have a big holiday season.
Analysts and investors anticipate a strong holiday shopping season in 2021, and retail stocks could be big winners. Bank of America projects U.S. fourth-quarter retail sales growth of 4.9% in 2021. That growth is down from 11.2% in 2020 but up from 3% holiday season sales growth in 2019. Investors should expect strong holiday growth in most retail categories as vaccines and falling COVID-19 case numbers boost shoppers’ confidence to return to stores and malls. Here are nine retail stocks to buy this holiday season, according to Bank of America.
Bath & Body Works Inc. (ticker: BBWI)
Retailer Bath & Body Works sells personal care products, such as candles, soaps and lotions. Analyst Lorraine Hutchinson says the company is one of the best-positioned retailers for the holiday shopping season and is a top stock pick in the specialty retail segment. Hutchinson says BBWI is an under-the-radar growth compounding stock, and its largely domestic supply chain insulates it from the international supply chain disruptions that are plaguing many competitors. Hutchinson says Bath & Body Works has been one of the most consistent growth investments in retail. Bank of America has a “buy” rating and a $90 price target for BBWI stock, which closed at $78.36 on Nov. 18.
Walmart Inc. (WMT)
Discount retailer Walmart was a market laggard in the third quarter. The stock is down about 5% in the past three months. Analyst Robert Ohmes says supply chain concerns and an end to consumer stimulus payments likely weighed on Walmart shares, but investors should anticipate a strong finish to 2021 for the stock. With inflation at multiyear highs, discount grocery retailers may also gain market share from higher-end competitors this holiday season. Walmart’s relatively strong inventory position will also help mitigate supply chain issues. Bank of America has a “buy” rating and a $190 price target for WMT stock, which closed at $143.17 on Nov. 18.
Target Corp. (TGT)
In addition to Walmart, Target is Ohmes’ top discount retail stock pick for the holiday shopping season. Like Walmart, Ohmes says, Target will maintain a relatively strong inventory position, will benefit from more favorable port access and long-term shipping agreements, and will gain market share in the fourth quarter from smaller competitors struggling with supply chain constraints. Ohmes says a shift to higher-margin, in-store sales in the fourth quarter should boost Target’s margins, and the company should face less labor cost pressure moving forward. Bank of America has a “buy” rating and a $317 price target for TGT stock, which closed at $252.05 on Nov. 18.
Starbucks Corp. (SBUX)
Starbucks is Bank of America’s top stock pick in the restaurant retail segment this holiday season. Analyst Sara Senatore says Starbucks’ resilience in recent years has been impressive and the company will likely see strong gift card demand in the fourth quarter. In addition, Starbucks has a history of conservative margin and earnings guidance, suggesting potential upside to the company’s fiscal 2022 forecast of at least 10% earnings per share growth. Senatore says Starbucks has pricing leverage that can help it offset rising costs. Bank of America has a “buy” rating and a $135 price target for SBUX stock, which closed at $112.90 on Nov. 18.
Amazon.com Inc. (AMZN)
E-commerce leader Amazon is Bank of America’s top holiday stock pick in the online retail segment. Amazon has been investing heavily in fulfillment and shipping infrastructure, initiatives that should help offset supply chain challenges in the fourth quarter. Analyst Justin Post says accelerating Amazon Web Services cloud revenue is helping the company overcome rising labor costs and manage margin pressures in what he describes as an “unusual” fourth-quarter environment. Post says Amazon is still gaining online sales market share and has opportunity for margin expansion. Bank of America has a “buy” rating and a $4,250 price target for AMZN stock, which closed at $3,696.06 on Nov. 18.
Lowe’s Cos. Inc. (LOW)
Home improvement has been a winning theme in the retail sector since the health crisis began in early 2020, and analyst Elizabeth Suzuki expects that trend to continue in the fourth quarter. Bank of America has named Lowe’s one of its top hard-line retail stock pick this holiday season. The company’s scale gives it more negotiating power with suppliers and transportation partners than smaller competitors, Suzuki says. In addition, she says Lowe’s will likely have superior in-stock levels in its stores, which is critical for professional customers. Bank of America has a “buy” rating and a $281 price target for LOW stock, which closed at $247.32 on Nov. 18.
Home Depot Inc. (HD)
Suzuki says Home Depot will also benefit from the same tail winds as Lowe’s in the fourth quarter, including scale advantages in a supply-constrained environment and the potential to gain market share from smaller competitors. Home Depot has even chartered its own cargo ships and shifted 10% of its containers to off-hours operations to alleviate West Coast port congestion. Do-it-yourself home improvement project growth will likely continue to ease following a 2020 spike, but Suzuki remains optimistic that home investment will ultimately remain above pre-pandemic levels. Bank of America has a “buy” rating and a $411 price target for HD stock, which closed at $405.84 on Nov. 18.
Driven Brands Holdings Inc. (DRVN)
Driven Brands is the largest automotive services company in North America. Suzuki says services retailers won’t have to deal with the same supply chain issues as the rest of the retail sector this holiday season, and she has named Driven Brands as a top pick for retail investors looking to play defense this quarter. Suzuki says Driven has exceeded expectations since it went public in January 2021. Looking ahead, there is room for paint, collision and glass revenue to rebound as holiday season driving activity recovers. Bank of America has a “buy” rating and a $49 price target for DRVN stock, which closed at $31.47 on Nov. 18.
Best Buy Co. Inc. (BBY)
Suzuki notes that specialty retailers such as consumer electronics leader Best Buy have struggled with inventory constraints in recent quarters, but they have successfully rebuilt inventory levels heading into the critical holiday shopping season. Suzuki says Best Buy has done one of the best jobs of improving inventory levels heading into the fourth quarter and named the stock a top pick in the specialty retail segment. In the longer term, Suzuki says, Best Buy is particularly well positioned to benefit from a hybrid in-office and remote work environment. Bank of America has a “buy” rating and a $157 price target for BBY stock, which closed at $135.59 on Nov. 18.
Best retail stocks to buy this holiday season:
— Bath & Body Works Inc. (BBWI)
— Walmart Inc. (WMT)
— Target Corp. (TGT)
— Starbucks Corp. (SBUX)
— Amazon.com Inc. (AMZN)
— Lowe’s Cos. Inc. (LOW)
— Home Depot Inc. (HD)
— Driven Brands Holdings Inc. (DRVN)
— Best Buy Co. Inc. (BBY)
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9 Best Retail Stocks to Buy This Holiday Season originally appeared on usnews.com
Update 11/19/21: This slideshow has been updated with new information.
