Summer is almost here, and Americans are planning to do what they always do: vacation and go all-in for summertime fun. As has been the case, most Americans are planning to spend a fair amount of their hard-earned dollars, and with good reason. The economy is better, wages are growing and despite somewhat higher prices at the gasoline pump, things are looking good.
The question for investors is where will that money be spent and, as is usually the case, the bigger the retail players, the better the odds they get a fair share of those dollars. Plus, as an extra bonus this year, retail stocks have somewhat underperformed and are offering solid entry points, along with dependable dividends.
We screened the Merrill Lynch retail universe and found four of the best companies that are rated Buy and look to be solid choices for growth investors this summer.
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 and 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 could bode well for international growth and expansion. The company is largely unharmed by e-commerce, and it continues to add stores in strategically mapped out locations.
Wall Street loves the company’s pricing authority on key items and the leading merchandising offerings, and the company’s relatively new Costco co-branded card with Visa is a real positive. Add in the company’s growing online presence, and the future looks bright.
Costco shareholders are paid a 1.15% dividend. The Merrill Lynch price target for the shares is $230, and the Wall Street consensus target is $213.13. The shares traded Wednesday morning at $197.55.
This top retailer has been on fire and posted big numbers. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States that offer private label, exclusive and national brand apparel, footwear, accessories, beauty and home products to children, men and women customers. The company also sells its products online at Kohls.com and through mobile devices.
While retail chains have suffered from internet pressure, Kohl’s has held its own as consumers see the company as a solid discount retailer. In addition, Amazon is growing its partnership with the department store chain. Last summer, the two companies announced that Kohl’s would begin selling Amazon devices, such as the Echo and Fire tablets, at 10 of its stores. Kohl’s also will be accepting Amazon.com returns at certain U.S. locations.
Investors are paid a 3.73% dividend. Merrill Lynch has a price target of $70 but it should be going higher soon. The consensus target is $69.53, and the stock traded at $74.80 Wednesday morning.