Retail stocks have long been a favorite sector for long-term investors. Why? Well, we all need to shop for things like groceries and clothes. Without these retail companies providing us with stores or websites, where would we get the things we need to survive? Because of this, retail stocks oftentimes provide a floor of safety and stability, as well as the potential for upside growth.
These stocks are also a bellwether for the strength of the economy and consumer sentiment. When retail companies do well, it usually means good things for other sectors as well. Overall, more consumer spending means a higher-functioning economy which can lead to more jobs and more opportunities. If you don’t have any exposure to retail companies, start by checking out these top three to buy for the second quarter!
Costco Wholesale (COST)
Costco (NASDAQ:COST) is an American multinational wholesale retail company. It operates more than 870 membership-only locations worldwide. The stock has an average analyst price target of $780.20 with a street-high target of $905.00. Currently, Costco is trading at about 7% lower than the average price target.
The magic of Costco is that it holds one of the strongest business models in history. Costco operates by offering access to wholesale pricing with an annual membership for each household. Over the years, Costco has been able to raise the cost of its membership, which now starts at $60.00 annually. This business model has allowed Costco to benefit from higher margins and aggressively expand into other markets including Mexico, Japan, and China.
Don’t let the high stock price fool you. Costco trades at just 1.3x sales. Costco has always traded at a pricer earnings multiple and is currently trading at 46x forward earnings. Additionally, compared to competitors, Costco’s five-year revenue CAGR of 11% has allowed it to beat out most of its retail rivals. As long as the hot dog remains at $1.50, Costco will be a reliable investment worthy of any long-term portfolio.
Walmart (WMT)
Walmart (NYSE:WMT) is the world’s second-largest retail company by market cap after Amazon. It operates more than 10,500 stores across 19 countries worldwide. Analysts remain bullish on Walmart with an average price target of $65.74 and a street-high target of $75.00.
In an economy with persistent inflation and perpetually on the brink of a recession, discount retailers like Walmart continue to do well. Much of this has to do with Walmart’s investment in its eCommerce platform, which crossed $100 billion in sales in 2023. With rising margins and cutting costs, CEO Doug MacMillan has assured customers and shareholders that Walmart will be able to continue to lower prices in the face of inflation.
As great as that sounds, it’s hard to get excited about Walmart stock, but maybe that’s a good thing. Shares are trading at 0.75x sales and 25.5x forward earnings. That means investors can buy Walmart now at a cheap multiple, all while benefiting from its great historical 18% five-year net income CAGR. To top it off, in the last five years, Walmart stock returned 77% to shareholders and raised its quarterly dividend to $0.207 per share!
Coupang (CPNG)
Coupang (NYSE:CPNG) is a South Korean eCommerce company that operates primarily in its domestic market. After a strong recent performance, CPNG stock has reached the level of the average price target from analysts at $21.28. The most aggressive price target for Coupang on Wall Street is $31.00.
You might have noticed Coupang’s recent rally after the company aggressively raised its monthly subscriber price. Coupang’s Wow membership is now $5.74 per month which is a nearly 60% bump in cost. As of the end of 2023, Coupang had 21 million active users, which made up around 90% of South Korean households. Thus far, Coupang has done well to fend off the likes of large U.S retail gaints like Walmart as South Koreans have remained loyal to their home brand.
Even after Coupang’s recent performance, the stock still just trades at 1.5x sales. This is a cheap multiple for the stock considering Coupang has grown its revenue by a CAGR of 27% over the past three years. Coupang is still relatively unknown outside of Asia but presents a rare opportunity for a retail stock to provide hyper-growth over the next few years.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (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.