Black Friday spending (however that’s defined these days) was better than expected. And many of the best-performing companies in late November will be retail stock winners as the year comes to an end.
But this holiday shopping season is a reminder that two things can be true at the same time. One truth of December 2023 is that the consumer is getting tapped out. A common theme among retailers is that consumers at all income levels are clearly prioritizing staple needs over discretionary wants.
The second truth, however, is that the retail space is changing. The November jobs report showed a decline in retail hiring. That just continues a trend towards e-commerce that was growing before 2020 but has become the preferred way of shopping for many consumers.
And underlying the growth of e-commerce will be artificial intelligence (AI). As retailers look for cost savings and optimizing inventory, AI will take on a greater role.
Here are three potential retail stock winners that you can confidently add to your portfolio before the calendar turns to 2024.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) has been on a tear this year. But most of that is not due to its e-commerce division. Rather, the story has been how Amazon is building AI into its Amazon Web Services (AWS) business.
Nevertheless, if the kickoff to the holiday shopping season is any indication, Amazon may be ready to remind investors that you shouldn’t overlook its e-commerce strength. According to Reuters, Amazon recorded $38 billion of U.S. online sales during the five-day period from Thanksgiving through Cyber Monday.
As Will Ashworth correctly notes, AWS is the profit driver at Amazon. However, in the last quarter of 2023 and into 2024, we may see the beginning of the company blending these two in a bullish way.
In an article for The Drum, Jeriad Zoghby, chief commerce strategy officer at IPG, noted how advertisers and investors are beginning to put all the pieces of the Amazon ecosystem together. That ecosystem includes streaming, gaming, social media, podcasts, music – not to mention e-commerce – all with first-party data already included. And AI will be a big driver of that activity.
As those pieces get put together, institutional investors are more likely to overlook the 73.6% gain in AMZN stock and bid the stock higher. That makes now an ideal time to get on board.
DICK’S Sporting Goods (DKS)
In the third quarter, DICK’S Sporting Goods (NYSE:DKS) delivered EPS of $2.85 per share on revenue of $3.04 billion. Both numbers were better year-over-year (YOY). The company also raised its earnings guidance for the full year to $12.00 to $12.60 from $11.50 to $12.30.
The November jobs report showed a decline of 38,400 jobs in the retail sector. That makes it noteworthy that DICK’s announced plans to hire 8,600 seasonal workers. It remains to be seen if the company will hit those numbers, but it may reflect a belief that the company’s third quarter earnings report was just the beginning.
The company has exhibited strength in the past three years primarily due to the development of its omnichannel capabilities. That, and the company’s strong private label brands, are two reasons to believe the company will deliver strong holiday sales.
On November 27, Truist Financial (NYSE:TFC) reiterated its Buy rating on DKS stock and raised its price target to $154. That followed another bullish call by Morgan Stanley (NYSE:MS) who raised their target for DICK’S stock to $150. Both numbers are significantly higher than the consensus target of $144.27.
Costco (COST)
Costco (NASDAQ:COST) is last on this list of retail stock winners. The company has continued to deliver higher YOY revenue and earnings despite what were expected to be tough comparisons to 2022. And in November, the company reported a 5% YOY increase in sales to $20.10 billion.
It’s important to note that Costco is overdue for an increase in its membership fee. The anticipated increase didn’t happen as expected in 2023. But Costco CFO Richard Galanti noted that an increase will happen “at some point” without specifying when that would occur.
Such a hike, which industry experts predict will raise the base membership to $65 from $60 is unlikely to have an impact on customer retention. However, that $5 increase across the company’s membership base would result in an additional $1 billion that goes right to the bottom line.
COST stock trades hands at $629.50 a share as of this writing. It also comes with a premium valuation of 39x forward earnings. However, the company continues to justify its premium valuation. In the last year, the stock is up 36%. And while a dividend yield of just 0.65% is nothing to excite investors, it does have a $4.08 annual payout per share that has been growing for 20 years.
On the date of publication, Chris Markoch 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.
