The impact of the COVID-19 crisis on the retail industry continues to reverberate almost two years after the pandemic struck the globe. Forced to close stores overnight and escalate their shift to eCommerce at warp speed to keep their customers happy, retailers have watched consumer behaviours change and business practices alter, perhaps for good. While some have been devastated by the health crisis, others have seen a massive performance jolt. As a result, the gap between industry leaders and laggards has widened, with some companies having dramatically increased their market value.
While much of 2022 remains uncertain, the year looks set to be marked by fast-moving innovation, while certain trends that accelerated last year, are expected to continue doing so this year. According to data from IBM, the pandemic hastened the shift to eCommerce by about five years, so much so that a mere two years ago, online purchases were just under 14% of all retail sales, however, 2021 figures point to an almost 50% increase.
The industry’s stock market performance has demonstrated that the pandemic has provided important tailwinds to retailers, particularly those who already had a strong omnichannel presence. With the rising cost of acquiring new customers, loyalty will become the new frontier of growth, so at a time when consumer behaviours are changing fast, customer experience is more important than ever and brands will have to work harder to engage and retain their loyalty. At the same time, supply disruptions remain, leading to record freight costs for companies and rising prices of raw materials like cotton and polyester.
As companies are battling to source products and materials in a robust global economic recovery, some companies have risen above the challenge. Here are some of these top retail stocks.
Amazon (AMZN)
The eCommerce behemoth needs little introduction, being firmly positioned in the retail space and having become a market leader in both eCommerce and public cloud. The stock has been one of the best performing in the market over the past two decades, however, you may be wondering what’s in store for the near future? Admittedly, stocks have had a rocky start to the year, while inflationary fears, labour shortages and the Federal Reserve’s move to pull back its bond buying are just a few of the things on investors’ minds. A slight drop in consumer spending and tough earnings comparisons with other retailers like Walmart (WMT) has affected Amazon, however, as supply concerns are set to improve, the company’s investment in logistics and fulfilment infrastructure is anticipated to pay off. As a result, several top Wall Street analysts have been bullish on the stock. For instance, JPMorgan (JPM) cited Amazon’s successful holiday shopping season, its eCommerce clout and the fact that its Web Services (AWS) still reign over the cloud-computing market as the primary reasons for giving the stock an uptick.
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Walmart (WMT)
Walmart’s revenue for fiscal 2021 has been nothing short of impressive, coming in at $559 billion, while over the past two years it has expanded into new areas that go beyond retail and managed to weather the pandemic. Indeed, the company reported 79% eCommerce growth in 2021. Its stock has slipped slightly, falling by more than 1% over the past 12 months, yet analysts have offered a favourable outlook for the stock, arguing that Walmart continues to innovate, most especially where it comes to streamlining its order fulfilment and its customer experience. On the other hand, its core capabilities reflect an unmatched scale and improved agility, whereas its investment and evolution into a more digital and omnichannel model is set to help it deliver stronger and more sustainable earnings growth. The retailer’s Walmart+ programme, in particular, is slowly becoming a strong competitor to Amazon Prime and is expected to help it to deepen its relationship with its loyal customers, as well as retain new customers that had onboarded during the height of the pandemic.
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Home Depot (HD)
The home building and home improvement retailer based in Atlanta, U.S., has for decades showed favourable and at times stellar fundamentals and 2021 has been no different. In November of last year, the company reported sales of $36.8 billion for the third quarter of fiscal 2021, an increase of $3.3 billion from the third quarter of 2020, while comparable sales for the third quarter increased 6.1%. Meanwhile, net earnings for the same period were $4.1 billion or $3.92 per diluted share, compared with net earnings of $3.4 billion or $3.18 per diluted share in the same period. As impressive as these results have been, what’s even more splendid is its stock performance, which has soared roughly 51% year to date, trumping that of the S&P 500, which has appreciated 24.4% during the same period. But there’s one more reason that makes Home Depot stock appealing – it has a safe and market-beating dividend, with a current dividend yield of 1.89%.
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Costco (COST)
Companies are typically considered great when they feature a strong business model, good financial performance and climbing stock prices. Costco has managed to tick all of these boxes. The company was been loyal in providing goods and services despite the pandemic and it has managed to remain nimble and adapt its business as needed to better serve its customers. For that, net sales for the 52-week fiscal year totalled $192 billion, an increase of 18%, with a comparable sales increase of 16%, while net income for the same period was $5 billion or $11.27 per diluted share, an increase of 25%. At the same time, revenue from membership fees increased 9% to $3.9 billion. Its business model heavily relies on bulk buying, which means that each unit is purchased at a lower price and these cost savings are eventually offered to its members. Meanwhile, a large percentage of the products it sells are ultimately basic needs goods, so the company’s cash flows tend to remain predictable. As for its stock, this has rewarded stockholders quite handsomely. Taking into account any dividends paid out, the total return between December 31, 2001 and December 31, 2021 is more than 1,700%.
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Lowe’s (LOW)
Lowe’s stock has had a solid run for much of 2021, rallying approximately 52% in a year and outperforming the industry’s 40.6% growth. Part of this has been attributed to a strong execution of its Total Home strategy, the other to the growth of its digital business. More specifically, its Total Home strategy is focused on boosting its productivity, as well as enriching the omnichannel shopping experience and by doing so it is managing to grasp a higher market share across its DIY and Pro categories. In fact, during the third quarter of 2021, sales increased 25% year-over-year. As a result, analysts have high hopes for the company and its stock for 2022. For instance, the Zacks Consensus Estimate for 2022 sales and EPS (earning per share) suggest a growth of 1% and 7.7% respectively from last year. In the meantime, in its latest guidance for the year, Lowe’s management projected sales of between $94 billion and $97 billion, while it remains committed to maximizing its shareholder value through an efficient capital-allocation strategy.
It’s time to add Lowe’s (LOW) stock to your portfolio.
Lululemon Athletica (LULU)
It’s no secret that Lululemon’s stock has been a big winner in the retail space in recent years, boasting a strong track record of execution, which has made it a great growth stock. In December, when it reported fiscal third-quarter earnings and sales, the stock took a slight beating, which was mainly amplified by the fact that it slashed its sales expectations for Mirror, the at-home fitness start-up it bought last year for $500 million. The deal was met with much fanfare at the time of its announcement, with Bank of America (BAC) stating that Mirror had the potential to generate $700 million in revenue and reach 600,000 subscribers by 2023. As people stuck at home swapped their outerwear and dressier attire for loungewear like hoodies, leggings and the likes, Lululemon sales increased and this growth was also evident in 2021. Earnings per share came in at $1.62 adjusted versus the expected $1.41, while revenue was at $1.45 billion as opposed to the anticipated $1.41 billion. Traditionally, Lululemon has been big with females, an important core of its business which continues to thrive, however, the company has made major strides in its men’s category, as well as in new markets. Indeed, much of the boost in its earnings was largely driven by its men’s business, which grew 44% year-over-year.
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H&M (HMB)
Disruptions to the global economy as a result of the pandemic have unsettled supply chains, leading to shortages of goods and containers, as well as storage and drivers for the transportation of these, all of which have caused a spike in shipping costs. The Swedish clothing giant Hennes & Mauritz AB, more commonly referred to as H&M, that boasts 53 online markets and stores in 74 markets worldwide has been hit by such supply delays. Yet, in December of 2021, the company reported that sales measured in local currencies in the September to November period have matched pre-pandemic levels, with net sales up 8% year-on-year at 56.8 crowns. And the recovery, so far, looks like it’s maintaining its momentum. As a result, a number of analysts, including Zacks Investment Research upgraded the stock from a sell rating to a hold rating back in December citing its wide choice of apparel, solid balance sheet despite some debt and growth prospects as reasons for this. What’s more, the stock holds buy signals from both short and long-term moving averages, which gives it a positive forecast for the stock.
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Inditex (ITX)
H&M’s biggest rival, Inditex might not ring an instant bell, however, the Spanish clothing company headquartered in Galicia, Spain, is the owner of globally known firms like Zara, Massimo Dutti, Bershka and Pull & Bear. Just as was the case with H&M, Inditex also reported significantly higher earnings in its nine-month period and strong sales growth. In the third quarter of 2021, its revenue in local currencies registered 21% growth from the previous year and 10% when compared with the third quarter in 2019. In addition, instore sales continued to strengthen throughout the third quarter, with revenue topping that of 2019’s third quarter in local currency terms, despite having 11% fewer stores open. Net profits attributable to the controlling company also surged a staggering 273% to €2.5 billion from last year’s €671 million. Some analysts have stated that this could well be an indication that its competitive position is stronger than ever after accelerating the integration of its online and physical businesses. In the meantime, its earnings per share were €0.803, up from €0.215 a year ago, while its shares have swept the stock market, reaching highs last seen in 2012.
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Woolworths (WHL)
The South African multinational retail company and one of the top companies listed on the Johannesburg Stock Exchange (JSE), Woolworths Holdings, owns the retail chain Woolworths, a leading South African retailer that offers a range of primary private label products, as well as Australian retailers David Jones, the premium department stores and Country Road Group, a speciality retailer. The Group is particularly known for its quality, innovative products that are responsibly sourced and readily available to its target markets. Despite the challenging trading environment the company was faced with in 2021 due to sluggish economic growth, weak consumer confidence and the impacts of the pandemic, Woolworths’ group sales increased by 9.7% to R85.9 billion, adjusted profit before tax was up 110.7% to R4.6 billion, whereas headline earnings per share (HEPS) increased by 212.5% to 374.4cps. The food business delivered strong results and gross margin performance, with its Woolworths Food business growing both market share and volumes during the period as turnover and concession sales for 2021 grew by 6.9% and by 5.7% in comparable stores.
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How to invest in retail stocks with Moneybase Invest
Ready to invest in these top retail stocks? Your first step to tapping into a world of investment opportunities with Moneybase Invest is to sign up and open an account.
To do so:
- Download the app from either Google Play or the Apple App Store. Alternatively, you may access Moneybase Invest on your desktop by visiting https://live.cctrader.com/
- Once you’ve onboarded successfully and have funded your account, head over to the search bar at the top of your screen and input either the stock name or ticker symbol.
- Select the instrument of your choice from the list and then click on the Buy button on the window located at the bottom of your screen.
- On the New Order page, input the number of shares you would like to purchase and hit the Place Buy Order. The stock has been added to your portfolio.
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Interested to invest in other sectors? Here are some top chain restaurants you may want to consider, some good performing auto stocks and some interesting semiconductor stocks. Alternatively, if you would rather stick to retail, these top eCommerce stocks have been leaders in their space for most of 2021.
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The contents of this article are not intended to be taken as a personal recommendation to invest but strictly based on research and for information purposes only. Retail investors should contact their financial adviser for a suitability assessment prior to taking any investment decisions.
