Investors who own consumer discretionary stocks have been battered this year. The sector is down 4.53% and is the worst overall performer in the S&P. After being a market leader the past two years, it is a bitter pill for many to swallow. A new report from UBS indicates the trend to better days for many big retail chains may be massive store closings. For all the talk about the disruption that retail is experiencing from the online players, the evidence shows that store productivity across the entire sector is healthy. UBS has a simple plan for investors, stick with the stocks of those companies in industries where demand trends are
stable and channel disruption is minimal.
Here are the five top retail names that UBS recommends investors buy now.
Advance Auto Parts Inc. (NYSE: AAP) makes the list, and auto parts stores as a whole have had a fantastic year. The brutal winter weather wreaked havoc with cars in general, and the retailers have seen a direct benefit. Advance Auto Parts stores also offer unique services to their customers that would be very hard to duplicate online. It would be difficult for online retailers to match its retail convenience and customer service needs. Investors are paid a miniscule 0.2% dividend. The Thomson/First Call consensus price target for the stock is $136.53. The stock closed Friday at $126.50 a share.
Home Depot Inc. (NYSE: HD) is just about to hit its sweet spot when it comes to the prime selling season. Remodeling tends to pick up as the weather improves, and this year is no exception. During the second half of 2013, the National Association of Home Builders’ Remodeling Market Index, which measures how busy contractors are, was at its highest level since the spring of 2004. Investors are paid a 2.4% dividend. The consensus price target is $89.60. Home Depot closed Friday at $79.13.
Lowe’s Companies Inc. (NYSE: LOW) is in pretty much the same catbird seat as its biggest competitor. The company has found that consumers like to bundle products and installation, reasoning that the process will be easier with a big-name brand than an independent contractor. This has led to strong sales for both of the giant retailers, and it has driven high floor traffic. The one-stop purchase and installation is a big focus going forward. Investors are paid a 1.5% dividend. The consensus price target is $54.05. Lowe’s closed Friday at $48.90.
O’Reilly Automotive Inc. (NASDAQ: ORLY) has ridden the same positive wave that all the automotive parts retailers have. In fact, the current growth estimate for this year calls for earnings-per-share growth of 16.3%. Furthermore, the long-term growth rate is currently an impressive 15.6%, suggesting pretty good prospects for the long haul. The consensus price target is $154.32. The stock closed Friday at $148.39.
Tractor Supply Co. (NASDAQ: TSCO) is a Wall Street favorite. The company has consistently grown sales on both the store level and overall for more than four years now. Though it is an old school brick-and-mortar retailer, the company is in a solid growth phase — and the market reflects it, with a more than 20-times forward earnings multiple. Investors are paid a small 0.8% dividend. The consensus price objective is $76.60. The stock closed Friday at $70.63.
Sticking with the winners is a solid strategy. The fact that the sector has been mauled so far this year makes these names even more attractive as they all go into their prime selling season. With spring finally starting to hit in most of the United States, customers will be on their way to the leaders to start spring and summer projects. Also, the U.S. housing market activity will get back into full-swing as the weather gets better, another huge positive.