4 Top Large-Cap Stocks Are the Best Way to Play the Retail Rebound

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When the economy is driven in large part by the consumer, slowing retail numbers are a worrisome sign for Wall Street. However, some great earnings numbers and, most importantly, an increase in the recent retail sales data have many investors fired up about the potential for a solid spring and summer. With winter drawing to a close, and some of the bad weather abating, now may be the time for investors to go shopping for top retail plays.

Given the positive recent positive retail sales numbers and the good earnings, it makes sense to stay with the biggest retailers, as they have the ability to increase advertising and utilize brick-and-mortar stores along with the internet.

We screened the Merrill Lynch retail coverage universe and found four large-cap stocks that are rated Buy, pay good dividends and look like the best way to play the turnaround.

Costco Wholesale

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, especially after posting strong fiscal second-quarter numbers.

Costco shareholders are paid a 0.99% dividend. The Merrill Lynch price target for the shares is $255, and the Wall Street consensus price objective was last seen at $241.27. The shares closed Tuesday’s trading at $232.96 apiece.

Kohl’s

This top retailer recently posted outstanding quarterly results. 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 many retail chains have suffered some from internet pressure, Kohl’s has held its own as consumers see the company as a solid discount retailer. In an ironic turn, Amazon is still 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 will be accepting Amazon.com returns at certain U.S. locations as well.

Investors in Kohl’s are paid a 3.85% dividend. Merrill Lynch has a price target of $80, but the posted consensus target is lower at $76.25. The stock closed trading at $69.70 a share on Tuesday.