After a disappointing holiday season for retailers, many have started 2017 under pressure. Almost no one was spared as reports surfaced talking about how retail sales were down for the season. While it was bad, this drop is a buying opportunity if you can spot the strong players in this industry. The problem is that many of the retailers have issues, so finding the stocks to buy is a little tougher than usual. Luckily, this post will highlight 5 hot retail stocks that you should consider adding to your portfolio now, before they become too expensive.
5 Hot Retail Stocks To Buy
#1. Target (NYSE:TGT)
Since its November high, Target stock is down close to 20%. But this doesn’t mean you should run from the stock. In fact, you should look at this as a buying opportunity.
Yes, consumers are moving away from brick-and-mortar retail stores and doing more of their shopping online. Target knows this. They are spending more money on beefing up their technology and updating their supply chains instead of building more stores. In fact, they are committing close to $2 billion a year to grow this side of the business. While this won’t result in profits overnight, it will have an impact moving forward.
With a P/E ratio of 11 and a dividend yield of close to 4%, now is the time to buy Target. As consumer confidence remains high, Target’s stock price should recover quickly. And if consumer confidence drops, Target will be scathed from most of the wrath since they are a discount retailer.
#2. Home Depot (NYSE:HD)
If you bought Home Depot back in October, you were a smart investor. It is pricey now, trading at 22 times earnings, but it has more room to grow. The housing market in the U.S. is still warm, incomes are rising and consumer confidence is high. This means that people will be remodeling and updating their homes.
But what if the U.S. economy enters into a recession? Home remodeling will slow and this will hurt Home Depot. But economic signs are not pointing in this direction, so for now, Home Depot is a stock worth adding to your portfolio.
#3. Amazon (NASDAQ:AMZN)
Love them or hate them, Amazon is here to stay and will be one of the hot retail stocks as long as they keep innovating. They crushed the holiday season while other retailers performed poorly. However we don’t know just how well Amazon did yet. As with holiday seasons of the past, Amazon didn’t release hard numbers. But all indicators point to a strong holiday season for the retailer.
The fact that Amazon continues to sell more goods is one reason to buy the stock. But there are more. According to research, half of U.S. households subscribe to Amazon Prime and half of online shopping searches start with Amazon. In other words, unless some other retailer has an unbelievable price, faster and cheaper shipping, and a better return policy, people are going to buy from Amazon.
The stock looks pricey at over $800 a share, but when you look at how the company continues to grow and innovate, there is no waiting for a pullback with this stock. You get in when you can and enjoy the ride.
#4. Ulta Beauty (NASDAQ:ULTA)
What if I told you there was a company that sold beauty products and it traded at $270 a share? You would think I was crazy. But just look at Ulta Beauty for proof. This retailer rose from close to nothing in 2008 and today is the leader in the beauty industry. While other retailers struggle to sell beauty products, Ulta makes it look easy.
Revenue continues to grow annually and net sales are expected to be up 21% for the fiscal year 2017. They are committed to opening 100 or more stores each year (they currently operate close to 900 stores) and are growing their online presence. Currently, Ulta estimates just 6% of their overall sales come from online purchases, but this number increased 47% in fiscal year 2016.
In other words, Ulta looks pricey at $270 a share but the reality is that it has a lot of room to grow.
#5. Burlington Stores (NYSE:BURL)
The off-price store is positioned nicely for a positive 2017 and beyond. As consumers continue to look for value when it comes to clothing, they flock to stores like Burlington, TJ Maxx and Ross. And as more department stores like Macy’s are closing, this means more potential traffic and sales at the off-price stores.
As of the third quarter, Burlington same store sales rose 3.7% and sales climbed to $1.34 billion, beating estimates. The company increased full-year earnings per share range to $3.11 – $3.15 compared to $2.92 – $2.96.
While it will be interesting to see if they can hit this increased guidance, one thing is for sure. People will continue shopping at off-price retailers, regardless if the economy is growing or slowing, which makes Burlington a buy.
Final Thoughts
The disappointing holiday season took its toll on the retail sector. As usual with bad news, everyone gets hit, even the ones that are doing well. As a result, these are buying opportunities to get in on some hot retail stocks that are trading at a discount.
With strong growth numbers and solid plan for the future, the time to buy these stocks is now.