Consumer discretionary stocks were big leaders in 2012 and 2013, but they have been downright horrible this year. In fact, the retail index is down by almost 10% year-to-date, even as the S&P 500 is up about 5%. While the heady days of two years ago may be over for awhile, value buyers looking to move some big gains from technology or energy may want to take a hard look at the top retail stocks ahead of the traditionally good fourth quarter.
In a new research report, the retail analysts at Deutsche Bank hardly pounded the table on jumping back into retail. However, they do think that the leading stocks can have not only a solid back-to-school season, but also benefit from an improving economy and job market that may start to loosen up consumer purse strings again.
Here are the four “Top Picks” in the retail sector from Deutsche Bank. All are rated Buy.
Best Buy Co. Inc. (BBY) and its within-store formats for makers of popular mobile devices and computers have drawn interest from major manufacturers, letting Best Buy take advantage of its retail space to give it competitive advantages that online retailers can't match. With a kiosk type environment for manufacturers, there is a decided advantage for the Best Buy model. A highly anticipated iPhone 6 launch next month is also expected to drive traffic to the electronics giant. Investors are paid a 2.7% dividend. Deutsche Bank has a $33 price target for the stock. The Thomson/First call consensus is set right inline at $33.05. Shares closed Tuesday at $29.46.
Lowe’s Companies Inc. (LOW) is the home improvement company that ranks the highest with consumers and ranks high with the Deutsche Bank team. The company has been using short ads on social media heavyweights such as Facebook and Twitter featuring home improvement tips. This resonates well with Americans of all ages that spend time on these sites. Lowe's also recently announced a program that continues to invest in capabilities to better serve their professional customers. Lowe's has launched ProExpress, an on-demand delivery service to get pros the emergency and last minute supplies they need. Investors are paid a 2% dividend. The Deutsche Bank price target is posted at $54, and the consensus price objective for the stock is $52.13. Lowe's closed Thursday at $49.83.
Ross Stores Inc. (ROST) is another top retail stock that may be poised to shrug off a poor 2014. With the economy growing slow, consumers are expected to still flock to the off-price retailers looking for bargains. The stock fell be more than 15% from its highs, and it may be giving investors a prime entry point. CNBC’s Jim Cramer recently said Ross Stores may be on the prowl to make an acquisition to spur growth. The Deutsche Bank price target for the stock is $78. The consensus price target for the stock is $77.88. Investors are paid a small 1.2% dividend. Ross Stores closed Tuesday at $66.01.
The TJX Companies Inc. (TJX) is another top stock that has been way oversold, down a large 15% since the spring. For investors looking for a consumer discretionary position, the stock is ideal as it is the low price leaders in retail. To build its e-commerce infrastructure, T.J. Maxx bought online off-price retailer Sierra Trading Post for $200 million in cash last December. Fashion bloggers are gushing over the new T.J. Maxx online selection, especially The Runway, which is devoted to luxury designers. Pent-up demand to buy online clearly exists. Growing online sales and increased store traffic may bode well for this top name. Investors are paid a 1.3% dividend. Deutsche Bank maintains a $62 price objective. The consensus price target for the stock is $64.24. The TJX companies closed Tuesday at $54.21.
With a very pricey market, it makes sense for investors to rotate some portfolio money towards the retail space. While many of the top stocks continue to fight the battle against online competition, most of them have added that to their sales arsenal and can compete in a challenging environment.
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