Economists are divided on the question of when, or if, a recession will occur. Some even support the argument that we’ve been in a rolling recession. Whatever your thoughts on the matter, the fact that a potential recession is still being discussed should put you on the hunt for recession-proof retail stocks.
Of course, the retail sector has been under pressure for well over a year. However, it’s only been in the last two quarters that many retailers are acknowledging consumer pullback. Still, shifting consumer buying habits, in this case, means they’re being more selective.
And that means investors need to be more selective as well. The playbook is not new. You’re looking for companies that are growing earnings and ones that analysts support. Here are three recession-proof retail stocks that you can buy for the short term or the long haul.
Chipotle Mexican Grill (CMG)
It may be strange to say a stock that’s up 353% in the last five years and will soon be conducting a 50-for-1 stock split is undervalued. But that may very well be the case with Chipotle Mexican Grill (NYSE:CMG).
Chipotle indeed trades at 58x forward earnings. But long-term investors are banking on the fact that Chipotle’s aggressive international expansion will allow the stock to grow into that valuation. The latest move that Chipotle made on that front was its partnership with the Alshaya Group to debut the brand in Kuwait.
Back in the United States, the company just reported first-quarter earnings that were exceptional by any measure. The results are noteworthy at a time when many consumers are eating at home to avoid the high cost of dining out.
If you don’t have a position in CMG stock, you’ll probably want to wait until after the stock split which will be effective June 18, 2024, pending shareholder approval.
Costco Wholesale (COST)
Speaking of stocks that have done well over the last five years, Costco Wholesale’s (NASDAQ:COST) stock is up 212% in the last five years. And the stock is already up 16% in 2024. Analysts indicate that the stock may be due for a pullback. But with 19 out of 38 analysts giving COST stock a strong buy or buy rating, investors should view that as a buying signal.
The company has noticed that consumers are prioritizing staple items over discretionary purchases. However, the company continues to deliver year-over-year revenue and earnings growth.
The company’s business model is based on its membership model. Once consumers pay the membership fee, they’re going to prioritize shopping at Costco. Costco hasn’t increased its membership fee since 2017.
It hasn’t announced that it will raise the fee, but based on history, it’s overdue. In the past, when the company increased its membership fee, it had little to no impact on the company’s membership numbers. Costco also plans to continue opening new locations both in the United States and abroad which provides another avenue for growth.
Chewy (CHWY)
Despite its niche in the pet care and wellness industry, Chewy (NYSE:CHWY) has lagged behind many retail stocks. In the last five years, CHWY stock is down 55%, and it’s down 33% in 2024.
The current issue is a lack of meaningful growth. CHWY stock soared nearly 4x in 2020 as more consumers brought pets into their homes. The company benefited from an e-commerce model that consumers needed. Unfortunately, Chewy wasn’t able to leverage that bottom-line growth as the economy reopened.
But analysts now view Chewy stock as oversold. Price targets range from $16 to $32 with the consensus being $22.80 which would be a 47% gain. As analyst sentiment improves, short interest is declining, and institutional ownership is on the rise.
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.
