The holiday shopping season is the most critical time of the year for many retailers, but the 2020 holiday season will be like none other. This year, holiday shoppers could determine the survival of struggling retailers. For other companies with strong online sales and delivery businesses, the fourth quarter is an opportunity for record revenues and significant market share gains. Bank of America is projecting 2.2% holiday same-store sales growth for the retail stocks it covers this year. Here are nine retail stocks Bank of America says investors should add to their holiday shopping lists.
Walmart (WMT) has been a superstar stock in the retail space in 2020, gaining about 28% year to date. Analyst Robert Ohmes says he expects those bullish trends to continue in the closing months of 2020, especially given positive momentum in online grocery shopping. Bank of America recently named Walmart one of its eight best investment ideas for the fourth quarter. Ohmes says Walmart's seamless omnichannel offerings give it the flexibility to thrive whether the health crisis improves or worsens in coming months. Bank of America has a "buy" rating and $175 price target for WMT stock.
Home improvement giant Home Depot (HD) has been another bright spot in a dark retail sector, gaining nearly 30% so far this year. Home Depot has actually benefited from the trends that have hurt other retailers in 2020. Many Americans are moving out of cities and into suburban and rural areas. A red-hot housing market and widespread social distancing measures have generated a surge in home improvement spending. Ohmes says Americans are dumping their travel and entertainment budgets into home projects for the time being. Bank of America has a "buy" rating and $350 price target for HD stock.
Nike (NKE) is another top retail performer in 2020, driven by a shift in consumer spending habits. Ohmes says Nike is benefiting from a spending shift away from traditional social entertainment events and international travel and toward individual activities, such as bicycling, golfing and hiking. Nike is a top "solitary leisure" stock pick, and Ohmes says the rising popularity of performance running and casual apparel and footwear are bullish for Nike demand. Bank of America has a "buy" rating and $125 price target for NKE stock.
Costco Wholesale Corp.
Shares of membership grocery warehouse company Costco Wholesale (COST) are also up nearly 30% in 2020. Ohmes says Costco's business is firing on all cylinders, recently reporting its second straight month of at least 15% year-over-year same-store sales growth in October. Traffic growth and average ticket size are also trending in the right direction. Traffic growth in particular could be a sign of a jump in new memberships, and Ohmes says Costco's business is well-positioned for both a socially distanced world and a return to normalcy in the long term. Bank of America has a "buy" rating and $400 price target for COST stock.
Lowe's (LOW) has finally outperformed its larger rival Home Depot in 2020 after years of playing second fiddle. Lowe's is benefiting from all the same bullish home improvement spending trends as Home Depot, and Ohmes says Lowe's recent 9% quarterly dividend hike is a sign of strong underlying business trends in the second half of the year. Ohmes says Lowe's has multiple catalysts in play, including a rise in remote work, a jump in holiday season do-it-yourself home improvement projects and the potential for additional government stimulus. Bank of America has a "buy" rating and $202 price target for LOW stock.
Target (TGT) has been aggressively investing in beefing up its online sales in recent years, and patient investors have been rewarded with a 29% gain in 2020. Ohmes says Target is also well-positioned to gain market share from competitors who have been slow to adapt to a shifting retail environment. In the most recent quarter, Target reported 10.9% same-store sales growth, and online sales nearly tripled from a year ago. Management said Target added 10 million new digital customers in the first half of 2020 alone. Bank of America has a "buy" rating and $175 price target for TGT stock.
Unlike the other retail stocks on this list, off-price department store company TJX (TJX) has not escaped the economic downturn unscathed. Though shares have rebounded in recent days to about flat for the year, they were down about 15% year to date at the beginning of November. However, analyst Lorraine Hutchinson says the weakness is a buying opportunity heading into holiday shopping season. Hutchinson says TJX has a clear path to long-term same-store sales growth and a well-established track record of strong inventory management and strategic execution. Hutchinson is projecting sales will rebound by 31.1% in fiscal 2022 after dropping by 20.5% in fiscal 2021. Bank of America has a "buy" rating and $62 price target for TJX stock.
Dollar General Corp.
Dollar General (DG) shares are up 37% so far in 2020, and Ohmes says the company is well-positioned in the current environment in which many shoppers are looking to avoid larger, crowded supermarkets. He is also bullish on the company's recently announced Popshelf initiative that involves new stores that offer a rotating selection of products, including seasonal items, home-related goods and health and beauty products. Popshelf stores are expected to be only around 9,000 square feet and have about 95% of items priced under $5. Bank of America has a "buy" rating and $229 price target for DG stock.
Lululemon Athletica (LULU) is benefiting from many of the same shifts in fashion, hobbies and spending trends that are helping Nike, and Lululemon's stock has significantly outperformed Nike in 2020 by gaining about 43%. Hutchinson recently met with Lululemon CEO Calvin McDonald, who said the company expects to gain additional market share both in the current disrupted environment and in the longer term. The company is projecting annual sales growth in the low-teen-percentage range and even higher earnings per share growth over the next five years. Bank of America has a "buy" rating and $390 price target for LULU stock.
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