By Matt McCallSep 17, 2017
After taking a beating from online retail giant Amazon (AMZN) over the last couple of years, the brick-and-mortar stores are finally starting to stage a comeback. The SPDR S&P Retail ETF (XRT) is up 9% from its August 21 low, easily outpacing the overall market.
Some positive retail news hit the wires this week when it was announced that Nordstrom (JWN) may be getting close to taking the company private. This stock happens to be one of my favorites in the department store space, and at current beaten-down prices, I believe now could be a good time to go private.
Regardless, JWN isn’t the only retail stock that’s started to perk up recently. Let’s take a look at three other big-name retailers that may finally be waking from their slumber.
As the country’s largest retailer and the world’s largest public employer, WMT can be considered the brick-and-mortar version of Amazon. These two competitors have co-existed thus far, with Wal-Mart gaining 16% in 2017. The stock has been consolidating recently, but it remains just 2.5% from its best level in more than two years and continues to beat the performance in both its sector and the S&P 500.
The company has started to build a presence for loyal customers via its website, so I suspect it will be able to continue co-existing with the rise in online retailers for some time. While WMT is no longer a growth stock, it can be considered a value play given its solid 2.55% dividend yield. And adding to its attraction is the fact that many investors view it as safe. When stocks got crushed in 2008, WMT was up and one of the best performers. I don’t see its strength going away any time soon.
I’m sure you’re all familiar with this retailer – it’s the one with the big red bullseye that consumers can’t seem to get enough of. TGT has just moved above critical resistance at $59.21 (the black line), which until Wednesday was its highest price since a big pullback in late February. If the stock can rally to new eight-month highs, it should be enough fuel to power higher prices.
But this is when it’s important to look at the fundamentals as well as the technicals. Even if TGT does break out, the upside will be limited in the coming months. The stock currently trades with a trailing P/E ratio of 11.9, which is well below the market multiple. However, earnings are expected to decrease in the next two years, falling from $5.01 a share in 2017 to $4.40 a share in 2019. This negative trend will lead to an increasing P/E ratio and a negative PEG ratio, both of which are bearish and will keep me away from TGT at least in the near term.
Home Depot has gotten a big boost over the last couple of weeks as investors anticipate a spike in demand following Hurricanes Harvey and Irma. After areas of Texas, Louisiana and Florida were ravaged, residents and business owners are ready to start the rebuilding process. The stock hit a new all-time high this week as a result, and it’s up 6% in the first two weeks of September.
Fundamentally speaking, HD is the strongest of the three companies we’ve talked about today as its bottom line is expected to grow at a solid clip in the years ahead. Plus, I like it as a secondary play on the continued housing rebound. As millennials become first-time home buyers, the demand for building materials and household goods will increase and Home Depot stands to benefit.
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