Retail has been a tough game over the last five years. The industry has contended with the pandemic, stores closures and a consumer shift to preferring online shopping. Since Covid-19 receded, retailers have been faced with the biggest surge of inflation in 40 years and the highest interest rates in 25 years. This has led consumers to focus on essentials and cutback their spending on discretionary items. But there are certain retail stocks to buy that still stand a chance in this tightening market.
The most recent retail sales report for April was flat, providing further evidence that consumer spending is slowing down amid sticky inflation and persistently high interest rates. Relief might be on the way should the U.S. Federal Reserve begin to lower interest rates this September as many economists and analysts expect. Lower interest rates would provide a much needed tailwind to retailers and could help boost their stocks.
As we inch closer to a lower interest rate environment, here are three retail stocks to buy with strong ratings.
Walmart (WMT)
Discount retailer Walmart (NYSE:WMT) just reported first-quarter financial results that topped Wall Street estimates due to growth in its e-commerce sales. The latest print explains why Wall Street rates WMT stock a strong buy. The median price target on the shares is $66.64, which is 3% higher than current levels. And that’s after the stock rallied 6% on news of the solid Q1 print. But it’s not surprising that a retail giant like Walmart would be top of the list of retail stocks to buy.
Walmart announced earnings per share (EPS) of 60 cents versus 52 cents that had been forecast among analysts. Revenue came in at $161.51 billion compared to $159.5 billion that was estimated on Wall Street. The profit and sales beats were driven by e-commerce sales that grew 22% year-over-year (YOY). Walmart said that it also grew its high-margin businesses, like advertising, as it pushes to increase its earnings faster than its sales. Global advertising sales increased 24% during the quarter.
WMT stock has gained 28% in the past 12 months and analysts see more upside ahead.
Lululemon Athletica (LULU)
Analysts are urging investors to buy the dip in Lululemon Athletica (NASDAQ:LULU). Despite LULU stock declining 34% this year, 21 analysts on Wall Street rate the shares a consensus strong buy. The median price target on Lululemon’s stock is $472.60, which is 41% above where the shares presently trade. Analysts clearly feel that the selloff in LULU stock has been overdone and is unwarranted.
Lululemon’s stock got crushed after the maker of athletic apparel and sneakers delivered financial results at the end of March that showed slowing sales in the U.S. and included weak forward guidance. The company has since announced plans to close a distribution center in Washington state and eliminate 100 jobs. Despite the gloomy outlook, Lululemon’s last print beat Wall Street expectations across the board.
Analysts have pointed out that Lululemon’s numbers have not been that bad, and also note that the company’s international expansion is succeeding. Lululemon’s Q4 2023 international sales grew 54% YOY, with sales in China increasing 78%. Despite the current pullback, LULU stock is up 94% over the last five years.
AutoZone (AZO)
AutoZone (NYSE:AZO) is another favorite stock on Wall Street. The largest retailer of aftermarket car parts and accessories in the U.S., the company has been in business since 1979 and today has more than 7,000 stores nationwide. A total of 18 professional analysts collectively rate AZO stock a strong buy with a median price target of $3,314.72, implying 13% upside.
Analysts like AutoZone’s niche focus on automotive parts and accessories and the company’s dominant position within the marketplace. This has translated into strong financial results for AutoZone. The company’s most recent earnings print was better than expected, lifted by a growing trend towards do-it-yourself (DIY) automotive repairs, particularly for older model vehicles.
AZO stock is up 13% this year and has almost tripled over the past five years. Long-term, the performance is even better. AutoZone’s stock has increased 95 times since the company began repurchasing its own shares in 1999. The stock has grown from $25 a share to nearly $3,000 in the last 25 years. There are rumors of a stock split coming.
On the date of publication, Joel Baglole 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.