Investors are increasingly concerned about a possible recession as disruptions caused by the coronavirus outbreak ripple through the entire economy.
Consumer spending is expected to drop sharply, and retailers could pay the price, Barron’s explained.
Still, some companies are likely to do better than others, wrote Cowen analyst Oliver Chen earlier this week. Chen evaluated the 13 retail stocks rated "outperform" by Cowen from three aspects — fundamentals, valuations, and historical track records — to see which are most likely to be the winners, Barron’s explained.
Summing up all the factors, Chen recommended his top 5 picks in the sector:
- Ulta Beauty (ULTA)
- Walmart (WMT)
- Costco Wholesale (COST)
- e.l.f. Beauty (ELF)
- Target (TGT)
Meanwhile, two other retail-related shares also apparently managed to survive the recent market chaos.
Dollar Tree Inc. (DLTR) and Dollar General Corp. (DG) are among the best performers so far this week in the broadly negative S&P 500 Index as fears escalate that the U.S. economy could be slipping into a coronavirus-driven recession, Bloomberg explained.
“In general, dollar stores execute better in a recession,” Loop Capital analyst Anthony Chukumba said Wednesday in a phone interview. Consumers tend to “trade down from higher-priced alternatives” like grocery stores, pharmacies, and even discount retailers such as Walmart and Target, because they tend to make smaller purchases, he said.
Chukumba favors Dollar General, which gets the vast majority of its sales from consumables. He rates the stock a buy. He has a sell rating on Dollar Tree, which has faced challenges integrating the Family Dollar chain it bought in 2015. Dollar General reports fourth-quarter results Thursday morning.
The chance of a U.S. recession within the next 12 months has surged to the highest reading since the country exited the last downturn in 2009, according to a Bloomberg Economics model.
Morgan Stanley analyst Simeon Gutman wrote earlier this week that discount/dollar stores are among retail segments “least vulnerable” to an economic slowdown.
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