Given so much talk about stubbornly elevated inflation and soaring borrowing costs, it’s not surprising that retail stocks incurred much skepticism throughout this year. However, Black Friday and Cyber Monday sales may have shifted the narrative. And it also appears to have caught the bears on the wrong side of the trade.
Notably, The Wall Street Journal reported that the day after Thanksgiving represented a bonanza for so-called holiday stocks. Yes, overall, Americans are hurting. However, the WSJ pointed out that shoppers are increasingly financing their purchases via buy now, pay later (BNPL) platforms. Now, that might be problematic down the line. However, for now, the message is that consumers will do what is necessary to keep retail therapy alive.
Moreover, Forbes reported that Cyber Monday sales also hit fresh records. Again, we’re seeing a familiar theme that households are doing whatever they can to participate in the festivities. It also demonstrates an uncompromising attitude that bolsters certain Black Friday stock winners.
For a heads up, I’m basing a large portion of my argument on short-covering speculation. So, that’s a topic you may want to read up on to get the most out of these retail stocks.
Best Buy (BBY)
A multinational consumer electronics retailer, Best Buy (NYSE:BBY) in the first two years of the Covid-19 pandemic benefited from the retail revenge phenomenon. However, 2022 represented an entirely different story, with skyrocketing inflation taking the air out of demand for consumer discretionary items. After all, with consumers sating themselves in prior years, there wasn’t as much of a point to gorge last year.
However, after consumers adjusted to the new normal of monetary policy, BBY suddenly appears as one of the enticing retail stocks. To be sure, analysts don’t really like it, rating it a consensus hold with a $72.62 average price target. At time of writing, this view symbolizes about 1% downside risk. However, you’ve got to respect the recent performance. In the trailing month, BBY gained almost 11% of equity value.
Looking at Fintel’s options flow screener – which filters exclusively for big block transactions likely made by institutions – we see that major entities have sold calls. One option in particular, the Jan 19 ’24 75.00 Call, seems risky for the bulls because it’s about to get blown up.
With BBY priced at $73.42, it could be an early Christmas gift for the bulls.
Target (TGT)
One of the most popular big-box retailers, Target (NYSE:TGT) earlier this year appeared quite problematic. In fact, in May of this year, I warned investors away from TGT via my TipRanks article. I suggested that organized retail crime – which remains a problem for Target and its ilk – imposes a dark cloud over the business. Looking at the share price performance, I’m glad I made that call.
However, TGT may now be one of the retail stocks to buy. Sure, analysts peg shares a moderate buy with a $151.04 price target, implying 12% growth. Still, the overall assessment is quite split: 14 buys, 13 holds. That doesn’t exactly inspire confidence. And it’s fair to point out that TGT is still down 11% since the January opener. Nevertheless, you’ve got to respect the near-term performance.
In the trailing month, Target shares jumped more than 21%, sparked by a surprisingly robust third-quarter earnings report. Still, options flow data shows that some major parties are still bearish on TGT. Notably, I’m looking at the sold Dec 29 ’23 130.00 Call options. With TGT priced at nearly $135, the call writers (sellers) are getting blown up. Cynically, TGT represents one of the holiday stocks to consider.
Five Below (FIVE)
Fundamentally, Five Below (NASDAQ:FIVE) in my view makes an almost no-brainer case for retail stocks to buy. It’s a chain of specialty discount stores so that alone makes the company incredibly relevant. After all, we don’t know what might appear on the economic horizon. Even better, Five Below doesn’t sell the typical dollar-store junk. Rather, by extending the prices up to five bucks, consumers get more product diversity.
Also, Five Below sells a select range of products that price between $6 to $25. Therefore, the company stands to attract shoppers beyond those who must patronize discount chains out of necessity. Besides, everyone loves a good bargain, no matter where it’s from. So, it’s not a shocker to see FIVE carry a consensus strong buy rating. What might be off-putting, though, is the average price target of $216.92.
That only implies upside of less than 9%, which might be too low. While FIVE incurred much choppiness this year, it’s been on a strong run recently. In the trailing month, FIVE gained over 13% of market value. It has the makings of one of the Black Friday stock winners due to the relevance of the business.
Williams-Sonoma (WSM)
One of the riskier ideas among retail stocks to speculate on, Williams-Sonoma (NYSE:WSM) under ordinary circumstances wouldn’t arouse much controversy. As a retailer that sells premium kitchenware and home furnishings, Williams-Sonoma benefits from a higher-income consumer base. So, in theory, WSM should be better insulated from economic headwinds.
To be sure, the controversy over WSM isn’t so much that “this time, it’s different.” No, if anything, this time, it’s the same. Since the start of the year, WSM skyrocketed nearly 72%. That’s so much better than other holiday stocks as you’ve no doubt witnessed. Therefore, Wall Street rates WSM a hold but with a $166.29 average price target. From the time of writing, that target implies a loss of 15%.
So, in perhaps any other circumstance, WSM should be an idea to be dumped. I mean, in the trailing month, it’s gone up over 28%. However, the bulls are determined to blow up bearish positions, particularly the Feb 16 ’24 185.00 Call. And there are other bearish bets that could also suffer a reckoning.
So, WSM just might be one of the sustained Black Friday stock winners.
Kimco (KIM)
If you’re looking for retail stocks to bet on amid a possible shift in consumer spending behaviors, Kimco (NYSE:KIM) appears a wise idea. Structured as a real estate investment trust (REIT), Kimco specializes in grocery-anchored, open-air shopping centers. Naturally, this directive enjoys relevance because let’s face it – no matter how advanced we become as a society, we must have access to nutritional sustenance.
Even better, Kimco recognizes – amid all the uncertainty – the viability of this no-nonsense protocol. Earlier this year, the company boosted its grocery-anchored portfolio with a key acquisition. Now, it did suffer some negative rumblings, with shares still finding themselves below breakeven for the year. However, as I’ve stated earlier, you’ve got to respect the near-term performance.
In the trailing one-month period, KIM gained over 8% of equity value. Nevertheless, a major entity (or entities) sold 2,303 contracts of the Jan 19 ’24 20.00 Call last Friday. That seems like an unadvisable wager. At the time of the transaction, KIM stock traded at $19.90. By the close, it was at $20.05 and really showing no signs of stopping.
It also pays a forward dividend yield of 4.79%. Therefore, it’s one of the holiday stocks to consider.
Nordstrom (JWN)
If the year had ended on Nov. 13, department store giant Nordstrom (NYSE:JWN) would look an ineffective investment. As mentioned earlier, consumers had suffered heavily from inflation and rising interest rates. With one of the easiest mitigation protocols centering on putting the scissors to discretionary purchases, Nordstrom seemed doomed. However, it redeemed itself beautifully.
For its Q3 earnings report, the company posted earnings per share of 25 cents, beating the consensus view of 12 cents. Revenue did miss but slightly, coming in at $3.32 billion against the expected $3.4 billion. Still, after some digestion, Wall Street appreciated the report, sending JWN higher. In the trailing one-month period, the security swung up over 11%, perhaps making it one of the Black Friday stock winners.
But can this momentum continue forward? Analysts don’t think so, rating JWN a hold with a $15.73 average price target, thus implying almost 3% downside risk. Under normal circumstances, JWN should arguably be a sell. However, the bulls are hungry.
Specifically, they may be looking to really blow up the sold Jan 19 ’24 15.00 Call. With JWN still running hot at over $16, this may be among the retail stocks to speculate on.
Macy’s (M)
Another iconic department store, Macy’s (NYSE:M) also represented one of the retail stocks that benefited from the retail revenge phenomenon. However, that momentum stopped in late 2021 as the realities of blisteringly hot inflation dominated the public discourse. Add the spiked interest rates and subsequent mass layoffs and consumers simply had little reason to spend unnecessarily.
Sure enough, M stock is still trying to recover what was lost. Since the beginning of the year, the company lost about 15% of equity value. However, this negative print ignores the fact that the recent performance has been phenomenal. In the trailing five sessions, it jumped over 15%. And in the past 30 days, M shares returned stakeholders almost 37%.
Undergirding sentiment was the company’s Q3 earnings report, which posted better-than-expected results. Additionally, management reaped the rewards associated with improved margins, cost cuts and reduced inventory. Subsequently, institutional investors began buying call options in large volumes, betting on a sustained rally.
However, bears have also sold calls, especially the Jun 21 ’24 13.00 Call. With shares priced at more than $17 and showing little sign of slowing, the bears may have bitten off more than they can chew.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
