It’s certainly a good time to be a large retailer in the U.S. With the strong labor market and inflation having greatly eased, consumers are generally in excellent shape. Moreover, supply chains have greatly improved and wage pressures have gotten much less intense, pushing retailers’ margins higher. Also importantly, durable goods orders jumped 0.3% in November versus October, while retail sales jumped 4.1% in November versus the same period a year earlier. The data points indicate consumers are becoming more interested in buying goods and reducing their long-term focus on experiences while the holiday shopping season is strong. Meanwhile, because the Street was so worried about the recession that never arrived and is unlikely to do so in the foreseeable future, many large retailers’ valuations are quite low and attractive. Here are the three best large retail stocks to buy now.
Costco (COST)
Costco (NASDAQ:COST) remains a favorite shopping destination for many middle-class, upper-middle-class and wealthy Americans.
Last quarter, its top line jumped 6% versus the same period last year to $57.8 billion. Its comparable sales advanced a healthy 3.8% year-over-year (YoY) and its earnings per share rose to $3.58 versus $3.07 YoY.
Showing confidence in its outlook, COST declared a special cash dividend of $15 per share payable on Jan. 12.
Analyst Joseph Feldman said, “Costco’s decision to announce a special dividend in this environment reflects robust results over the past few years and management and the board’s confidence in future business trends.”
COST’s enterprise value/EBITDA ratio of 26 times is elevated. But, Costco is still one of the best retail stocks to buy due to its combination of high profits, strong growth and popularity with Americans with significant disposable income.
Best Buy (BBY)
Boding very well for Best Buy’s (NYSE:BBY) holiday shopping season, BBY’s store sales jumped 12% in November YoY.
Further, the Street is getting more upbeat on BBY. Goldman Sachs (NYSE:GS) recently named the company as a company whose sales could reach a positive turning point in 2024 due to consumers’ higher demand for goods. Investment bank Jefferies (NYSE:JEF) expects the firm’s 2024 results to beat expectations, driven by gamers’ PC upgrades.
What’s more, I anticipate BBY will benefit from stronger PC sales in 2024 as consumers and small businesses buy PCs with internal AI capabilities.
In the month that ended on Dec. 22, BBY climbed 12%, indicating investors are warming up to the name. The shares have an attractive forward price-earnings ratio of 12 and a highly appealing dividend yield of 4.8%.
Target (TGT)
Target (NYSE:TGT) is another large retail stock to which the Street is warming. Goldman Sachs recently named TGT as its top pick in the retail sector, saying the company should benefit from “market share gains across categories from various mall-based retailers on strong merchandising.” Additionally, Goldman predicted the retailer’s margins will climb 6% over the long term.
Also noteworthy, Investor’s Business Daily gave TGT stock an Accumulation/Distribution grade of A-, indicating major investors have been scooping up large amounts of the name over the last 13 weeks.
TGT stock has an attractive Enterprise Value/EBITDA ratio of 10.4 times.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
