Retail

6 Must-Own Retail Stocks as Rest of the Sector Slowly Goes Nowhere

Dollar Tree

This bargain retailer was hit hard back in early May 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 $23 billion in revenues in 2018.

The company operates 15,237 stores in 48 U.S. states and five provinces in Canada under the Dollar Tree, Family Dollar and Dollar Tree Canada banners, and the 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 for Dollar Tree, given the company’s big presence in the discount market.

The $115 Merrill price target compares with $111.40 the consensus target. Shares closed at $100.29 apiece.

Target

This remains a solid and safe retail total return play now, and it 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 and is expanding retail floor space for toys as it looks to scoop market share after the closing of Toys “R” Us.

Solid numbers and a very positive analysts day had the Merrill analysts noting that they believe the company’s ability to moderate fulfillment costs through its “stores as hubs” model should drive margin improvement in fiscal 2020. They also feel the valuation is compelling at current levels.

Shareholders receive a 3.18% dividend. Merrill Lynch has set a $105 price objective, well above the $86.60 consensus target. Shares closed at $85.49.

Walmart

The giant retailer has rallied nicely off the April lows but still has upside. 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 2019 revenue of $515 billion, Walmart employs approximately 2.2 million associates worldwide.

The company announced last summer its plans to acquire a 77% stake in India’s 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.

Shareholders received a 2.1% dividend. The Merrill Lynch price target is $120. The consensus target is $108.47, and shares ended Wednesday at $104.42 apiece.

Six of the biggest retailers are continuing to fight and win against the huge online presence of Amazon. Consumers continue to show loyalty to all six, and they may be poised to have big summer selling seasons, with consumer confidence continuing to be very solid and their earnings looking good as well.

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