Holiday Shopping Is Almost Here: 5 Large-Cap Winners to Buy Now

October 5, 2018 by Lee Jackson

It seems hard to believe, but the summer is over, the football season is already a quarter of the way done, Halloween will have goblins on your street soon, and Thanksgiving is a short six weeks away. What that means of course, is many people are starting to shop for the holiday season, and with the internet playing a big role now for brick-and-mortar giants, they are ready to take on the pure-play internet leaders.

Research indicates that omnichannel shoppers, those that use the internet and brick-and-mortar stores, tend to spend more than those who just go shopping at malls and shopping centers. With tax breaks providing additional income, and companies raising salaries in some cases, it should be a jolly season for the big retail players.

We screened the Merrill Lynch research universe database looking for the mega-retailers that look poised to cash in this year. We found five that are all rated Buy and look like excellent choices for investors looking to add retail-related stocks in front of the holiday season.

Amazon

This company is the absolute leader in online retail, and it recently opened its first brick-and-mortar store in New York City. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers.

The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.

Consistent with data from earlier in 2018, digital marketing users overwhelmingly cited Amazon as the fastest-growing channel for advertising budgets, while many retailers are also leveraging their Amazon advertising data to retarget users on other channels (namely Facebook) to drive traffic/ sales to their own websites (bypassing Amazon marketplace/FBA fees).

The Merrill Lynch price target for the stock is $2,200, and the Wall Street consensus target is $2,123.77. The stock closed trading on Thursday at $1,952.76.

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 0.98% dividend. Merrill Lynch has a price target of $255, and the posted consensus price objective is $241.48. The shares closed on Thursday at $233.20.

Dollar Tree

This bargain retailer was hit hard back in February and could be offering a very compelling entry point. Dollar Tree Inc. (NASDAQ: DLTR) is one of the largest dollar store chains in the United States, with nearly $21 billion in revenues in 2017.

The company operates 14,482 stores in 48 U.S. states and five provinces in Canada under the Dollar Tree, Family Dollar and Dollar Tree Canada banners and stores carry an assortment of consumables, general merchandise and seasonal products.

Given the spike in purchasing from lower income consumers, this could be a huge positive Dollar Tree given the company’s big presence in the discount market.

The $105 Merrill Lynch price target compares with the $96.50 consensus figure. The stock closed Thursday at $81.55 a share.

Target

This company has had its share of issues, but it now resides on the Merrill Lynch US 1 list. 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. Plus, Target posted outstanding earnings for the most recent quarter on Wednesday morning.

Shareholders receive a stellar 2.98% dividend. Merrill Lynch has set its price objective at $100. The consensus target is $89.01, and the shares closed most recently at $85.97.

Walmart

The giant retailer is still on sale after trading sideways for much of this year. 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 announced in the summer 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.

Walmart shareholders are paid a 2.21% dividend. The Merrill Lynch price target is $115. The posted consensus target is $104.11, and the shares ended Thursday at $94.21.

The key to all these top companies is they offer what most consumers are looking for: the lowest prices every day. In a very competitive world, they continue to be a formidable challenge for smaller companies and should once again dominate the holiday shopping season.

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