Seven Retail Investments to Purchase Despite Ongoing Supply Chain Struggles
By: Paul Dykewicz,
Seven retail investments to purchase despite ongoing supply chain struggles feature three funds, one of the world’s biggest and best-known providers of modestly priced products and three picks from a Wall Street investment firm.
The seven retail investments to purchase feature companies that may be able to navigate the current freight backlog better than many other retailers, even though the industry generally is currently hamstrung by slow delivery of goods from overseas manufacturers. Pension fund chairman Bob Carlson chose three retail funds to purchase, veteran stock picker Jim Woods, who leads the Intelligence Report and Successful Investing newsletters, added an industry giant and BoA Global Research selected the other three investments.
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Pension Fund Head Taps Three of Seven Retail Investments to Purchase
Bob Carlson, a pension fund chairman who heads the Retirement Watch investment newsletter, said a number of retailers are likely to do well in the next year or two years.
“I believe economic growth will continue at a strong rate,” Carlson said. “Households are in the best financial position they’ve been in some time.”
In addition, savings and income are both at high levels, and the economy appears likely to sustain the strong position of households to support a high level of consumer spending, Carlson continued.
Trio of Funds Are Among the Seven Retail Investments to Purchase
There are several ETFs that investors can use to diversify their exposure to retailers, if they prefer not to pick individual retailer stocks, Carlson opined. Unfortunately, there aren’t any ETFs that focus on discount retailers exclusively, he added.
“But an ETF that concentrates on Consumer Staples is likely to have good exposure to the same trends,” Carlson said.
An ETF strategy that is similar to investing in discount retailer stocks is available through Invesco S&P SmallCap Consumer Staples (NASDAQ: PSCC). Top holdings in the fund recently were WD-40 (NASDAQ: WDFC), The Simply Good Foods Co. (NASDAQ: SMPL), Medifast (NYSE: MED), Celsius Holdings (NASDAQ: CELH) and J&J Snack Foods (NASDAQ: JJSF). The fund recently held 27 stocks and had 57% of the fund in the 10 largest positions.
Another ETF that holds small, growing retailers is Invesco S&P SmallCap Consumer Discretionary (NASDAQ: PSCD). Top holdings in the fund recently were Macy’s (NYSE: M), Stamps.com (STMP) , Meritage Homes (NYSE: MTH), Signet Jewelers (NYSE: SIG) and Rent-A-Center (NASDAQ: RCII). The fund recently held 87 stocks and had 28% of the fund in the 10 largest positions.
Bob Carlson, a pension fund head who writes the Retirement Watch newsletter, is interviewed by investment columnist and author Paul Dykewicz.
SPDR S&P Retail (XRT) Heads Seven Retail Investments to Purchase
ETFs that focus on all retailers also are available and will hold most well-known brands and companies in the industry. For example, SPDR S&P Retail (NYSEARCA: XRT) seeks to track the S&P Retail Select Industry Index.
That fund is focused primarily on the consumer defensive and health care sectors of the market, with some exposure to consumer cyclical and industrial stocks. XRT recently held 107 stocks and had 13% of the fund in the 10 largest positions.
Top holdings in the fund recently were Stamps.com (NASDAQ: STMP), Albertsons (NYSE: ACI), Dick’s Sporting Goods (NYSE: DKS), Shutterstock (NYSE: SSTK) and Etsy (NASDAQ: ETSY).
Seven Retail Investments to Purchase Include Walmart
Walmart (NYSE:WMT), a giant Bentonville, Arkansas-based retailer, reported revenue for fiscal second-quarter ended July 30, 2021, of $141.0 billion, rising a modest 2.4%, hampered by roughly $8.9 billion in divestitures. Excluding currency fluctuations, total revenue would have ticked up just 0.6% to $138.6 billion, the company reported on Aug. 17.
The company’s consolidated operating income for the just-ended second quarter reached $7.4 billion, up 21.4% from the same quarter a year ago. Consolidated operating income, as a percentage of net sales, climbed 83 basis points.
Woods recommends WMT in his Intelligence Report Income Multipliers portfolio. The stock has profitable for his subscribers since he recommended it.
Giant Walmart Stands out Among Seven Retail Investments to Purchase
In addition, Walmart’s adjusted earnings per share of $1.78 excluded the effects, net of tax, of net losses on equity investments of $0.26 per share.
Walmart’s U.S. business showed growth. One example was increased market share in its U.S. grocery business. Comparable transactions during the just-finished fiscal quarter jumped 6.1%. Plus, Walmart U.S. operating income gained 20.4% in the latest fiscal second quarter, with adjusted operating income rising 12.0%.
“When inflation creeps higher, consumers tend to buy where their dollars are treated best,” said Jim Woods, editor of the Intelligence Report and Successful Investing newsletters, as well as the leader of the Bullseye Stock Trader advisory service. “One way to play this is to own the biggest discount retailer in the world, Walmart.”
Chart courtesy of www.StockCharts.com
Sales at Walmart U.S. eCommerce Outpace Its Brick-and-Mortar Stores
Walmart U.S. eCommerce sales grew 6% and 103% on what management described as a “two-year stack.” The company’s advertising businesses increased globally and nearly doubled in the United States compared to the same quarter a year ago.
Current and prospective shareholders may appreciate that Walmart has repurchased $5.2 billion in shares so far this year, or around 25% of the $20 billion authorization announced earlier in 2021. Such share repurchases support the stock price.
BoA consulted with Christopher Chase, marketing manager at the Port of Los Angeles, to provide firsthand information about the state of the freight backlog. Chase reported that the cargo currently on ships traversing the water or expected to load in the next month should arrive on time for peak season, but November holiday orders could be at risk of delay.
Ross Stores Ranks Among the Seven Retail Investments to Purchase
Ross Stores, Inc. (NASDAQ:ROST) is an S&P 500, Fortune 500 and Nasdaq 100 stock headquartered in Dublin, California, with fiscal 2020 revenues of $12.5 billion. The company operates Ross Dress for Less, the largest off-price apparel and home fashion chain in America with 1,585 locations in 40 states, the District of Columbia and Guam at the end of fiscal 2020.
Ross seeks to offer quality, in-season, name brand and designer apparel, accessories, footwear and home fashions at savings of 20% to 60% off regular department and specialty store prices. The company also operates 274 dd’s DISCOUNTS stores in 21 states that feature moderately priced in-season and name brand apparel, accessories, footwear and home fashions at savings of 20% to 70% off regular department and discount store prices.
Chart courtesy of www.StockCharts.com
BoA’s $150 price objective is based on price-to-earnings (P/E) of 27x the investment firm’s fiscal 2022 estimate. Its analysis found Ross deserves to trade at a premium to specialty retailers (averaging a multiple of 17x) due to its capability to post outsized comparable store sales, its track record of growth despite economic volatility, significant new store potential and a history of returning excess cash to shareholders through buybacks and dividends.
Risks to meeting BoA’s price target include potential lower comparable sales than currently estimated, gross margin contraction due to markdowns, execution problems and a pullback in spending by middle- and moderate-income customers.
TJX Makes List of Seven Retail Investments to Purchase
The TJX Companies, Inc. (NYSE:TJX), of Framingham, Massachusetts, is an off-price apparel and home fashions retailer in the United States and worldwide. With a mission of offering “great value” to its customers every day, the company’s management team uses what it describes as a flexible business model to serve one of the widest demographic reaches in the retail industry.
Historically, the TJX Companies serve a range of value-conscious consumers, while trying to deliver steady sales and earnings growth through many retail and economic environments domestically and abroad. TJX is one of the few large U.S.-based brick-and-mortar retailers of apparel and home fashions to have expanded internationally with operations in nine countries across three continents.
The company’s management plans significant long-term store growth in the United States and worldwide. Before the COVID-19 global health pandemic, TJX management managed to produce strong financial returns and cash flow simultaneously to invest in the growth of the business and return cash through dividend payments to shareholders.
BoA Gives TJX a Price Objective of $90
BoA’s price objective of $90 on TJX reflects a P/E of 25x its fiscal 2023 and 2022 calendar estimates. This is in line with the off-price group average. BoA wrote that the comparatively high multiple is warranted, since TJX has outperformed the retail industry domestically and has solid international and square footage growth potential. Plus, TJX has a track record of returning excess cash to shareholders in a non-pandemic environment, while providing high returns on invested capital.
Potential risks to the price target are weaker comparable sales than BoA now models, prolonged fleet-wide store closures due to the coronavirus and continued margin pressure as TJX absorbs wage and freight inflation and supply chain expenses, as well as potential weakness in Europe.
Seven Retail Investments to Purchase Include Bath & Body Works
Bath & Body Works, Inc. (NYSE: BBWI), a specialty retailer based in Columbus, Ohio, offers a breadth of exclusive fragrances for the body and home through its stores. Formerly known as L Brands, Inc., Bath and Body Works announced on Aug. 3 that it completed a previously announced separation of its Victoria’s Secret business into an independent, publicly traded company named Victoria’s Secret & Co. The new company includes Victoria’s Secret Lingerie, PINK and Victoria’s Secret Beauty. Victoria’s Secret common stock began trading Aug. 3 on the New York Stock Exchange under the ticker symbol VSCO, while Bath & Body Works common stock started trading that day under the new ticker symbol BBWI.
“We are thrilled to have reached this milestone and to launch Bath & Body Works as a standalone public company,” said Andrew Meslow, chief executive officer of Bath & Body Works. “Innovation remains at the foundation of Bath & Body Works, and with our leadership positions across key product categories, strong performance across channels, and highly loyal and growing customer base, we are poised to continue our track record of industry-leading growth and profitability.”
The separation was achieved by distributing 100% of the shares of Victoria’s Secret to holders of Bath & Body Works common stock after the market closed on Aug. 2. Bath & Body Works stockholders received one share of Victoria’s Secret common stock for every three shares of Bath & Body Works common stock held at the close of business on the record date of July 22.
Bath & Body Works’ net sales soared to $1.704 billion for the second quarter ended July 31, 2021, compared to net sales of $1.253 billion for the second quarter ended Aug. 1, 2020. Bath & Body Works sales for the second quarter of 2021 zoomed 54% compared to the same period the prior year.
Chart courtesy of www.StockCharts.com
Victoria Secret’s Performance Reveals Weakness Amid the Pandemic
Shares of Victoria’s Secret dropped and those of Bath & Body Works climbed after the two now-separate retailers reported their respective quarterly earnings results for the first time. Victoria’s Secret shares closed Thursday, Aug. 19, down 3.5% at $69.15, while Bath & Body Works shares jumped more than 10% to $65.51.
While trying for a turnaround, Victoria’s Secret announced its sales for its fiscal second quarter ended Aug. 1 increased to $1.61 billion, up from $1.07 billion for the same quarter a year ago. But the company’s revenues have not been able to match pre-pandemic levels. Victoria’s Secret’s management also held back on offering an outlook for the full fiscal year due to uncertainty from the COVID-19 pandemic that poses problems in assessing consumer demand.
Pandemic-related disruption to Victoria’s Secret’s supply chain also is expected to boost freight and product costs by up to $100 million this fall and hurt its profitability in the fiscal fourth quarter, company management said.
BoA’s price objective for Bath & Body Works of $90 values the company at 13.5x its fiscal 2022 estimated enterprise value (EV) / earnings before interest, taxes, depreciation and amortization (EBITDA). The investment firm expects continued growth as all of BBW’s categories are beneficiaries of consumer demand trends spurred by COVID-19. This multiple reflects its history of consistent growth. A standalone BBW warrants a heightened multiple, BoA predicted.
A possible risk to meeting BoA’s price objective is if comparable sales fall below estimates.
Discounters Included Among Seven Retail investments to Purchase
Potential winners from supply chain delays include discounters such as non-dividend-paying Burlington Stores Inc. (NYSE:BURL), also known as Burlington Coat Factory, an off-price retailer, and a division of Burlington Coat Factory Warehouse Corporation. The company operates 740 stores in 40 states and Puerto Rico, with a corporate headquarters in Burlington Township, New Jersey.
However, the share price recently has slid. For example, Burlington fell 9.2% on Aug. 26, despite the company reporting positive earnings for second-quarter fiscal 2021 that topped the Zacks consensus estimate and showed improvement from the same quarter the year before. Bargain hunters may find the stock worth purchasing after its recent drop to $297.36 at the close of trading on Sept. 3.
Chart courtesy of www.StockCharts.com
Non-Dividend-paying Burlington Offers Alternative to Dividend Payers
Burlington’s revenues failed to attain analysts’ consensus estimate, despite rising from the fiscal second quarter for the previous year. CEO Michael O’Sullivan stated that the “trend is difficult to predict” and the business will be managed flexibly to chase opportunity or pull back, if needed. The straight talk seemed to have unsettled certain investors amid the share price’s drop.
“In addition, we are seeing a huge imbalance between supply and demand in global logistics systems,” O’Sullivan said. “This is driving up freight and supply chain expenses and it will put significant pressure on our margins for the balance of the year.”
BoA’s price objective for Burlington is $370, based on 39x a fiscal 2022 earnings estimate that reflects strong performance and the opportunity for earnings to continue beating analysts’ forecasts. This is a premium to the off-price peer group, but Burlington’s above-average expected earnings growth and ongoing margin expansion warrant a premium valuation, BoA concluded.
Potential risks to Burlington attaining the price objective set by BoA are weaker-than-expected comparable store sales and reduced gross margins than now estimated.
Delta Variant May Slow Seven Retail Investments to Purchase
The highly transmissible Delta variant of COVID-19 has proven to be a huge public health threat as a new surge of cases has spread across the United States. The Centers for Disease Control and Prevention (CDC) is blaming the variant for nearly all the new cases and deaths.
For example, the CDC reported on Sept. 2 that its estimates show the Delta variant is causing more than 99% of recent COVID-19 cases in the United States. The CDC also reported on Sept. 2 that the seven-day average of daily new cases reached 153,246, jumping 4.9% from the prior week and 1,217.0% from the lowest average in June 2021.
One positive development is that the variant is leading to an increase in the number of people vaccinated from COVID-19. As of Sept. 3, 206,461,869 people, or 62.2% of the U.S. population, have received at least one dose of a COVID-19 vaccine. The fully vaccinated consist of 175,538,025 people, or 52.9%, of the U.S. population, according to the CDC.
COVID-19 cases worldwide, as of Sept. 3, total 219,524,013 and led to 4,548,377 deaths, according to Johns Hopkins University. U.S. COVID-19 cases thus far have reached 39,687,229 and caused 644,844 deaths. America has the unfortunate distinction as the country with the most COVID-19 cases and deaths.
The seven retail investments to purchase can give investors a chance to profit amid the pandemic, since shoppers like to buy bargains, especially when they consist of quality merchandise.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and
DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing!