It goes without saying that the novel coronavirus has been a huge negative for retail stocks.
Across the world, malls and physical retail stores were forced to close throughout March, April and May. Where they have reopened, traffic volumes remain depressed relative to the norm. Sure, many of these retailers have seen a surge in online spending. But that surge has not been enough to offset what has been an apocalyptic drop in in-store sales.
According to JPMorgan (NYSE:JPM) credit card data, consumer spending has been dropping at a 10%-plus year-over-year pace ever since March.
As consumer spending has plunged, so have retail stocks, especially those retail stocks with a strong reliance on mall-based, physical retail sales.
But you shouldn’t treat all retail stocks equally.
Instead, there are a few retail stocks worth buying amid Covid-19 turbulence. That’s because these winning retailers are actually managing the Covid-19 crisis quite well. In fact, they project to come out the other side better than ever before. Yet, their stocks — in many cases — are being dragged down by sector-wide weakness.
With that in mind, here are my five favorite retail stocks to buy today:
- Lululemon (NASDAQ:LULU)
- Urban Outfitters (NASDAQ:URBN)
- Crocs (NASDAQ:CROX)
- Bed Bath & Beyond (NASDAQ:BBBY)
- TJX Companies (NYSE:TJX)
Retail Stocks to Buy: Lululemon (LULU)
Walk into any Lululemon store across the country, and the bull thesis on LULU stock becomes crystal clear.
Even today — amid a global pandemic which has killed hundreds of thousands of people — Lululemon stores are packed. Yes, Lululemon is limiting the number of people that can go into a store. But for most stores, that number always seems to be maxed out. At many stores, there is often a line wrapping around the building.
Alternatively, you could go on Lululemon.com. The bull thesis on LULU stock is equally crystal clear online. Many of the company’s top-selling items — like the newly launched Align Tank or Align Shorts — are sold out, across most sizes and most colors.
Or, you could just look at this chart from Google Trends. Search interest for “Lululemon Athletica” has surged globally in 2020.
In other words, no matter where you look, the narrative is the same: Demand for Lululemon apparel is robust. More robust than you’ll find anywhere else. To that end, Lululemon is — in my opinion — the strongest retailer in the world today.
Naturally, if you’re buying retail stocks, then you should buy stock in the strongest retailer in the world.
Valuation is a slight concern here and now. But it’s not a big enough concern to derail what has been a red-hot rally in LULU stock. Shares will ultimately continue to power higher for the foreseeable future on the back of robust underlying demand trends.
Urban Outfitters (URBN)
Another retailer which will continue to benefit from strong demand trends is Urban Outfitters.
Urban Outfitters and its three brands — Urban, Anthropologie and Free People — have made a killing over the past few years selling Bohemian-style, very on-trend apparel to young, trend-oriented consumers. For several years, Urban Outfitters has ranked as one of the top shopping destinations for young consumers on Piper Jaffray’s Taking Stocks with Teens Survey (see 2018, 2019 and 2020).
Not surprisingly, Urban Outfitters has reported strong operating results over the past few years. In 2017, net sales rose 2%. In 2018, they rose 9%. And in 2019, they rose 1%. That consistently positive sales growth is against the backdrop of a mall sector that has been in a secular decline.
In other words, Urban Outfitters has found a winning formula is a losing sector.
This winning formula has fared well during the Covid-19 crisis. The company saw a surge in traffic to its website in April and May. Then, as physical stores started to reopen in June and July, long lines formed to get into those stores.
This winning formula will also persist long after the pandemic passes. But URBN stock doesn’t reflect this winning formula.
URBN stock is down 45% year-to-date. Shares trade hands at just 0.4 times sales. They usually trade at 1 times sales.
As Covid-19 headwinds pass, I think URBN stock will take off toward $25, making this one of the best retail stocks to buy now.
Retail Stocks to Buy: Crocs (CROX)
The only apparel retail brand out there that can give Lululemon a run for its money in terms of rising consumer popularity is Crocs.
Crocs burst onto the scene back in 2017 when the “ugly” fashion trend emerged. Naturally, demand for Crocs — whose classic foam clog is the poster child for “ugly shoes” — soared as the fashion trend swept across the globe.
There’s nothing surprising about that.
But, what is surprising is the staying power of this trend.
Crocs demand has not wavered at all over the past few years. Comparable-store sales were down 3% in 2016, flat in 2017, up 10.8% in 2018 and up 12.4% in 2019. Meanwhile, in recent months, search interest related to Crocs and web traffic to Crocs.com has soared, as the company’s comfort-first sandals have become consumers’ favorite stay-at-home shoe.
Zooming out, the “ugly” fashion trend is part of a broader pivot toward consumers caring more about functionality than form.
Just look at the way we work. We went from offices filled with executives in suits, to people wearing t-shirts and flip-flops. Or look at the way we talk. We’ve gone from formal speak, to text talk.
Fashion embracing comfort over style is simply a byproduct of this secular, lifestyle consumer pivot that’s been happening for decades.
As such, it has long-term staying power. So do rising demand trends for Crocs. In all honesty, I wouldn’t be surprised to see Crocs reach the sort of fashion ubiquity that Lululemon has reached recently.
So long as these rising demand trends stick around, CROX stock will keep pushing higher.
Bed Bath & Beyond (BBBY)
The best turnaround story in retail today belongs to Bed Bath & Beyond.
Bed Bath & Beyond possess a strong brand and a formidable value prop centered around being a one-stop shop for all home-related items. But the retailer has long been mismanaged by a team that was slow to pivot to e-retail, relied too heavily on promotions to drive sales and didn’t do anything to update in-store presentations.
New management is shaking everything up.
They are closing underperforming stores and shrinking the real estate footprint, thereby reducing wasted labor and rent expense. They are updating the remaining stores to be more modern, relevant and tech-integrated, in hopes that doing so will increase foot traffic and sales per square foot.
The new management team is also leveraging data-driven merchandising to improve the product assortment and drive sales with better products (not more promotions), making BOPIS (buy online, pick-up in store) and curbside pick-up ubiquitous across all retail locations, and doubling down on improving logistics for the online retail business.
Ultimately, these moves should dramatically improve the Bed Bath & Beyond shopping experience and turn Bed Bath & Beyond into the modern retailer it needs to be in order to survive in today’s dynamic retail environment.
Consequently, emerging from the Covid-19 pandemic, Bed Bath & Beyond will be much stronger than it was coming into the crisis.
BBBY stock simply isn’t priced for this reality. As such, once this reality does emerge in 2021 and 2022, BBBY stock could easily rise 100%-plus.
Retail Stocks to Buy: TJX Companies (TJX)
Last, but not least, on this list of retail stocks to buy amid Covid-19 turbulence is TJX Companies, the owner of TJ Maxx and HomeGoods.
The bull thesis on TJX stock is two-fold.
One, the current economic disruption caused by Covid-19 will not be short-lived. Principally, thanks to a loss of demand in the travel, leisure and hospitality industries, employment in those verticals will remain depressed for the next 6-plus months. Consequently, broad unemployment rates will, for the foreseeable future, remain elevated.
More unemployed people — and grater fear of potential layoffs — pushes more consumers into the discount retail channel. TJX is king in that channel.
Two, the Covid-19 pandemic has emphasized the value of the home. Because we’ve all been stuck at home for the past few months, we are all starting to think about ways to upgrade our home. Not everyone can go out and arrange for a complete overhaul of the kitchen. But most people can afford a new discount chair, or discount rug.
HomeGoods is the leader in the discount furniture retail. As such, it’s fairly likely that the pandemic will create longer-running tailwinds for HomeGoods.
For these two reasons, TJX’s fundamentals at present are actually quite good. These good fundamentals will enable TJX stock to outperform for the foreseeable future.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not own a position in any of the aforementioned securities.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not own a position in any of the aforementioned securities.