Any way you look at it, and regardless of who you voted for, getting the election completed is good for stock market investors. Despite fears of a Trump victory causing a major sell-off, just the opposite has happened, and optimism for tax cuts and growth in the economy is on the rise. That is just the ticket to help boost holiday sales, and some large cap potential winners may be just the right additions to portfolios.
In a new research report, Merrill Lynch’s Lorraine Hutchinson sees holiday comparisons growing at just under 1%, and she agrees that tax cuts and potential for gross domestic product growth could give a boost, albeit a moderate one, to holiday spending. She cites three top picks in the retail sector, and we also think a large cap technology stock is poised for another year of sales growth.
All four are rated Buy at Merrill Lynch, and the first three below are the Merrill Lynch top retail picks for the holiday season.
This top retail stock has backed up in price since the end of September and is offering good entry point. Burlington Stores Inc. (NASDAQ: BURL) is a national off-price retailer of high-quality branded apparel with more than 500 locations in 44 states and Puerto Rico. Burlington also operates an e-commerce business. The company sources from over 5,000 vendors, with a focus on nationally recognized brands. Similar to other off-price retailers, the company employs an everyday low price model and offers discounts of 60% to 70% off department and specialty stores’ regular prices.
The analyst points out that last year’s unseasonably warm weather during the holiday season put a dent in coats and cold weather accessories, and this year’s expectation for normal cooler weather could be a plus. Also cited is the customer’s desire for discounted pricing on brands that will be similar to department store offerings.
The Merrill Lynch price target for the stock is $95, while the Wall Street consensus target is $89.46. The shares closed most recently at $77.20.
This has become the ultimate destination for the American consumer regardless of the economy. Costco Wholesale Corp. (NASDAQ: COST) has a unique business model: It operates membership warehouses where the company buys the majority of its merchandise directly from manufacturers, essentially cutting out the middleman. Costco sells in bulk but also at a lower price, thus fueling its rapid growth. With consumers having more free cash to spend with gasoline prices still low, this major retailer may continue to see large revenue gains.
Costco remains one of the few conventional retailers where metrics like store traffic, market share gains and a validated model that could bode well in international growth and expansion. The company is largely unharmed by e-commerce, and it continues to add stores in strategically mapped out locations.
Merrill Lynch cites the company’s pricing authority on key items, the leading merchandising offering and the company’s relatively new Costco co-branded card with Visa as real positives. The firm also points to the company’s growing online presence.
Costco shareholders receive a 1.18% dividend. The Merrill Lynch price objective is $170, and the consensus target is $168.51. Shares closed yesterday at $152.14.