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.
Costco
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.
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Kohl’s
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.
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McDonald’s
The fast-food giant does a ton of business overseas and still remains a solid pick for investors seeking dividends and a degree of safety. McDonald’s Corp. (NYSE: MCD) is the world’s leading global foodservice retailer, with over 36,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local business persons.
The company posted solid first-quarter results and shares took off, as menu price increases fueled the big earnings beat. Same-store sales in the United States grew 2.9%, in line with analyst expectations. Global same-store sales were also strong, rising 5.5% and topping estimates of 3.7%, as the number of customers coming through the door rose 0.8%.
Where better for busy American families on vacation to stop and get a meal than the golden arches, where years of familiarity and thousands of locations make it a reasonable and good fast-food experience.
McDonald’s shareholders receive a 2.53% dividend. The $190 Merrill Lynch price target compares with a consensus price objective last seen at $186.56. The shares were trading at $160.55.
Target
This company has had its share of issues over the past few years, but it seems like a solid and safe retail total return play now. Target Corp. (NYSE: TGT) is one of the largest discount retailers in the United States, operating roughly 1,800 Target stores across the country. The company sells merchandise in its Signature Categories Style, Baby, Kids and Wellness, as well as other products in both physical Target stores and online at Target.com.
Since 2017, Target has poured tons of money into its e-commerce offerings, overhauling its stores and refreshing its inventory to better compete against Amazon. Target has even embraced the same-day delivery concept. Most importantly, the company seems to have put some good distance between the headline issues that were public relations nightmares, and it continues to be a favorite destination of consumers.
Shareholders are paid a 3.55% dividend. Merrill Lynch has set its price objective at $86. The consensus target price is $76.97, and shares traded at $78.05.
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Walmart
The giant retailer is still on sale after being pummeled in late January. Walmart Inc. (NYSE: WMT) is the world’s largest retailer, operating retail stores under the formats of Walmart Stores, Supercenters, Neighborhood Markets, as well as Sam’s Club locations, in the United States, and it has a growing e-commerce business (including Jet.com). Internationally, Walmart also operates locations in several countries, including Argentina, Brazil, Canada, China, Japan, Mexico and the United Kingdom.
Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce sites in 11 countries. With fiscal year 2017 revenue of nearly $486 billion, Walmart employs approximately 2.2 million associates worldwide.
The company has announced plans to acquire a 77% stake in India e-commerce retailer Flipkart in a $16 billion debt and cash transaction. The deal dramatically expands Walmart’s presence in India, where online retail is growing quickly and Flipkart is a leader. The deal is expected to close in fiscal 2019 and could be dilutive for the foreseeable future.
Shareholders are paid a 2.46% dividend. Merrill Lynch recently lowered its price target to $98 as a result of the massive purchase. The consensus target is $96.36, and shares traded at $85.10.
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Five of the biggest retailers that continue to fight the huge online presence of Amazon. Consumers still show loyalty to all five, and they may be poised to have big summer selling seasons, with consumer confidence sky-high and earnings rising as well.
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